Freddie Mac and Fannie Mae, the government-sponsored housing finance companies that represent approximately half of all mortgages, have announced plans to extend their existing programs so that unemployed borrowers can defer part or all of their monthly payments for up to 12 months while they are out of work.
The moves come after the Obama administration announced last July a similar program for loans backed by Federal Housing Administration insurance, as well as mortgages serviced by lenders that are participating in the government’s loan modification program.
Fannie Mae sent guidance to lenders on Wednesday saying that banks could offer unemployed borrowers up to six months of lowered or skipped payments without seeking Fannie’s prior approval, and that banks could extend that forbearance up to 12 months with approval. This guidance modified a policy from September 2010, when Fannie expanded its existing forbearance option for other hardships like natural disasters to include unemployment.
Wednesday’s announcement also said that unemployed homeowners who apply for an official forbearance after already missing some payments can skip only up to a maximum of 12 months. After that, if homeowners are still unemployed or unable to make payments, lenders and borrowers would have to consider other options, including a permanent loan modification or a short sale.
Freddie Mac announced last Friday that it would permit jobless borrowers to skip or reduce payments for up to 12 months as well. Previously, borrowers whose loans were owned by Freddie were eligible for up to only three months of suspended or reduced payments. In most cases, the homeowners must pay back the lower or skipped payments over a longer loan period.
“These expanded forbearance periods will provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new employment and resolve their delinquencies,” Tracy Mooney, a senior vice president at Freddie Mac, said.
The financial firms and banks do not report exactly how many jobless people have used the programs.
Under the new rules, lenders are required to consider a forbearance plan among a number of options to prevent foreclosure. Most of the government programs intended to forestall or prevent foreclosure have not lived up to expectations, and many homeowners have lost their homes. Last year, foreclosures were filed against about two million properties, down from 2.9 million in 2010, according to RealtyTrac, a real estate data provider.
Neither Fannie nor Freddie could specify how many borrowers might be eligible for the forbearance options, but it would be up to lenders to administer them.
Bank of America said it was “currently assessing operational aspects of implementing” the extensions. GMAC Mortgage said it was already participating in forbearance programs and would continue to follow Fannie and Freddie guidelines. Wells Fargo said it would review the details of Freddie and Fannie’s updated options.
Some analysts were skeptical of the programs’ effects. “It’s a humane and not at all unreasonable policy, but I wouldn’t expect it to do much to the housing problem,” said Joseph Gyourko, professor of real estate at the Wharton School at the University of Pennsylvania. “This will save some of them,” Professor Gyourko said. “But some of them shouldn’t be in the homes they are in and some of them won’t end up finding jobs that will enable them to pay for their mortgages, so there could be some downside because it could slow the foreclosure pipeline.”
And it is not clear that many borrowers who are eligible for delayed or suspended payments have been granted the option. Only 16,633 homeowners have been granted forbearances under the Treasury’s program for lenders who are participating in the government’s loan modification program. Only 3,000 homeowners whose loans are backed by F.H.A. insurance have been granted a forbearance since July.
Housing advocates said Fannie and Freddie’s options should help more struggling borrowers. Forbearance “is a real life saver,” said Lewis Finfer, a community organizer at the PICO National Network, a coalition of faith-based organizations. Jobless borrowers will have more time “to hopefully get more hours or get re-employed, and they can save their home during that period.”
Article source: http://feeds.nytimes.com/click.phdo?i=6e4fb9e147637b49f078036d9975f556
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