Friday, July 8, 2011

Jobless homeowners to get more leniency

WASHINGTON - The Obama administration is making it easier for out-of-work homeowners to stay in their homes, as it tries to revamp its troubled foreclosure-prevention program.

Starting Aug. 1, the Federal Housing Administration will extend the period for unemployed homeowners to miss mortgage payments to a full year from three or four months. That will allow qualified homeowners to go without making a monthly payment for 12 months before the foreclosure process begins.

The extended grace period applies only to FHA-backed loans, which are usually given to low- and middle-income borrowers and represent about 14 percent of all active mortgages and roughly 25 percent of new mortgages. The grace period also applies to homeowners in the government's Home Affordable Modification Program.

But the change will likely help only "tens of thousands" of homeowners, Shaun Donovan, secretary of Housing and Urban Development, said Thursday.

Last year, roughly 17,000 homeowners received a government-supported delay on their mortgage payments. About 3,500 borrowers with FHA-insured loans fall behind on their mortgages each month because of unemployment, officials said, and an additional 10,000 unemployed homeowners have taken advantage of a three-month delay in mortgage payments in the past year.

Donovan said administration officials hoped private lenders and government-controlled mortgage companies Fannie Mae and Freddie Mac, which back 90 percent of all new mortgages, will adopt a similar policy.

"Our hope is that this will have broader effects," Donovan said during a conference call.

But Fannie and Freddie signaled they would not be adding a broader, industrywide rule, saying they were confident in their existing policies for homeowners.

New rules already going into effect Oct. 1 for the mortgage giants allow for long-term forbearance when a home or a place of employment has been destroyed; if the homeowner or a dependent has a long-term disability or illness; or if the borrower has died and the property is in probate.

Mortgage payments can be put off for up to a year in those cases.

"We think these guidelines provide the appropriate tools to prevent foreclosure whenever possible for unemployed homeowners," said Andrew Wilson, a Fannie Mae spokesman.

The government launched its chief foreclosure program in 2009 by lowering monthly payments of homeowners at risk of foreclosure. Borrowers start with lower payments on a trial basis. But the program has struggled to convert them into permanent loan modifications.

More than 1.6 million troubled homeowners received trial modifications over the past two years. But a majority of the applicants, about 854,000 homeowners, have dropped out of the program entirely.

In recent weeks, administration officials have acknowledged that housing has become a significant drag on the economy. President Barack Obama, during a town-hall-style meeting Wednesday on Twitter, said the housing market had "been most stubborn to us trying to solve the problem."

He acknowledged that the government's programs to help homeowners were "not enough" and said the administration was "going back to the drawing board."

Homeowners accepted into the foreclosure assistance program receive interest rates as low as 2 percent for five years. They can repay their loans over a longer period. The median savings for those who remain in the program is about $526 per month.

Those who have their payments delayed must repay them with interest.

by Derek Kravitz Associated Press Jul. 8, 2011 12:00 AM

Jobless homeowners to get more leniency

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