December 12, 2011
In July 2011, the Obama administration announced changes to the FHA loan program which requires lenders to extend FHA loan forbearance to unemployed borrowers.
This change affects those who already have FHA mortgages rather than those applying for them; the new rules “require servicers to extend the forbearance period for unemployed homeowners to 12 months. The Administration also intends to require servicers participating in the Making Home Affordable Program (MHA) to extend the minimum forbearance period to 12 months wherever possible under regulator and investor guidelines.”
According to the FHA press release announcing these changes, “These adjustments will provide much needed assistance for unemployed homeowners trying to stay in their homes while seeking re-employment. These changes are intended to set a standard for the mortgage industry to provide more robust assistance to unemployed homeowners in the economic downturn.”
Originally the FHA Special Forbearance Program had only a four month forbearance period, something the government recognized was simply not good enough.
“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” U.S. Housing and Urban Development Secretary Shaun Donovan said. “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.”
According to the FHA.gov press release HUD No. 11-139, all participating lenders must offer the FHA Loss Mitigation Program which includes these new guidelines.
There is also a required period of review at the end of the forbearance to evaluate the affected borrower for “all additional, applicable foreclosure assistance programs and notify the borrower in writing whether or not he/she qualifies for any other available option. If the borrower does not qualify for any foreclosure assistance option, the servicer must provide the borrower with the reason for denial and allow the borrower at least seven calendar days to submit additional information that may impact the servicer