The Obama Administration recently quadrupled the mortgage payment forbearance period for unemployed homeowners and announced interest-free loans for unemployed and under-employed homeowners.
The adjustment to the Federal Housing Administration loan program will require mortgage servicers to extend the forbearance period for unemployed homeowners from three to 12 months.
FHA borrowers will have to pay back any past due balance after the forbearance period expires, but the order means servicers can't begin foreclosure on unemployed homeowners until 12 months after unemployment.
"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.
The Administration will also require servicers participating in the Making Home Affordable Program (MHA) to likewise extend the minimum forbearance period to 12 months wherever possible.
The moves are designed to give unemployed homeowners some breathing room to stay in their homes while looking for jobs.
"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," Donovan said.
The Administration also wants to be a role model for the mortgage industry to encourage it to provide more meaningful assistance to unemployed homeowners during the economic downturn.
'EHLP' loans help unemployed and under-employed
Both unemployed and under-employed homeowners could qualify for special no-interest loans of up to $50,000 under an expanded initiative called the "The Emergency Homeowners' Loan Program (EHLP)."
The $1 billion infusion from the "Dodd-Frank Wall Street Reform and Consumer Protection Act" is expected to assist some 30,000 distressed homeowners threatened with foreclosure because they are either unemployed or suffer reduced employment.
EHLP is an adjunct to the existing, $7.6 billion, federally financed, state-administered "Hardest Hit Fund," for 18 states and the District of Columbia, areas hardest hit by the housing crisis.
EHLP takes assistance for employment-challenged homeowners nationwide by adding 27 states and Puerto Rico to the program. Five more states will administer their own variety of the new EHLP.
To qualify, homeowners must have experienced a decrease in income of at least 15 percent due to "involuntary unemployment or under-employment" related to economic conditions and/or a medical emergency. They must also document that the monthly mortgage payment is more than 31 percent of their monthly income.
Homeowners must also have been at least three months delinquent on mortgage payments, as of June 1, 2011 and have received a written notice (often referred to as a "breach letter") from their lender or servicer stating that they are at least 60 days late and at risk of foreclosure.
There are other income, owner-occupied and documentation conditions, but those who qualify will be eligible for loans expected to average $35,000 and not exceed $50,000. The deal will pay 69 percent of the monthly mortgage payment, including missed mortgage payments or past due charges, including principal, interest, taxes, insurances, and attorney fees.
After assistance for up to two years, the government will forgive 20 percent of the loan each year. Homeowners won't have to pay anything back if they remain current on their mortgage and stay in the home for at least five years after the assistance period.
Homeowners hoping to qualify must sign up by July 22, 2011, enter a lottery and win one of the 30,000 or so spots during a draw expected by Aug. 15, 2011.