CHESSNOID

This is a new program that the current Obama administration is putting together in hopes of reducing foreclosures.  Basically, any government insured loan where the borrower is unemployed will have 12 months instead of 4 months to find a job and at the same time skip payments for that period of time.

I don’t know when this takes effect, but it has been announced. Will this help most people? The answer is no. Will it help some people? The answer is yes.  The situation will depend on whether that unemployed borrower can obtain employment.  That is the common problem with most of the borrowers in default or in arrears.

Without a job there is little or no income to make the house payment.  Unemployment and food stamps only take you so far.  That is why the forbearance will not work for most people because it doesn’t solve the underlying problem.

Just like the previous programs put in place like HAMP or TARP by the white house, long term it will fail.  The best this program can do is stall the process.  Considering that right now it is taking up to 2 years for lenders to foreclose, this forbearance really isn’t helping anyone.  A possible unintended consequence might be clearing the pipelines in court for the queue of houses that need to be foreclosed on now.

LA Times:

The new requirement for so-called forbearance comes on top of several initiatives the White House has launched since 2009 to try to stem the tide of foreclosures, which continue to drive down real estate prices.

President Obama admitted this week that those efforts — such as the much-maligned Home Affordable Modification Program, which offered incentives to banks to lower monthly payments for troubled borrowers — haven’t tamed the problem.

“We’ve had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up,” Obama said. “That’s probably been the area that’s been most stubborn to us trying to solve the problem.”

Housing advocates and some lawmakers have pushed the administration to increase the amount of time unemployed homeowners would be allowed to skip payments. The White House agreed partly because 60% of people without jobs have been unemployed for more than three months, Donovan said.

Separately, the Federal Reserve told Congress on Thursday that it wanted uniform standards for how mortgage servicers handle modifications, foreclosures and other issues. The Fed, along with HUD and other federal regulators, is working on such standards.

In addition, regulators are working with attorneys general from all 50 states on a broad settlement with major banks of investigations into botched foreclosure paperwork.

The administration’s latest plan, unveiled Thursday, affects a small group of homeowners — about 3,500 borrowers a month who default on loans backed by the Federal Housing Administration and a total of about 1 million people eligible for HAMP aid.

But Donovan said he hoped that the new requirements would be adopted voluntarily throughout the broader mortgage industry.

Under the plan, mortgage servicers for FHA-insured loans will be required to allow qualified homeowners to miss up to 12 months of payments as unemployed borrowers look for new jobs.

The administration also is making it easier for unemployed homeowners to qualify for the assistance, removing what it called some “upfront hurdles” involving screening for employment and payment history.

In addition, mortgage servicers participating in the administration’s mortgage modification program will be required “whenever possible” to extend the minimum period that eligible unemployed homeowners can miss payments to 12 months.

The missed payments would be added to the mortgage balance and made up by the homeowner, though in some cases those debts could be forgiven by the lender, Donovan said.

But like the other government attempts to aid homeowners, the new effort has limitations. Only about 10% of some 50 million mortgage loans outstanding nationwide are backed by the FHA. And less than a quarter of the approximately 4.6 million homeowners who are behind on their mortgages qualify for the HAMP program.

Bert Ely, an independent banking consultant, said allowing unemployed homeowners to skip payments sounds good in theory but has problems that would make it difficult for the industry to adopt a 12-month standard.

“Unfortunately, a lot of times forbearance just postpones the problem,” he said. “So you extend from four months to 12 months and things don’t work out. Who eats the loss?”

But the People Improving Communities Through Organizing National Network, a coalition of faith-based community groups, said the administration’s announcement Thursday was “yet another step toward breaking the link in America between losing your job and losing your home.”

Rep. Barney Frank (D-Mass.) also cheered the move, saying many of his colleagues believed that the previous minimum “was not nearly enough time.”

“I think the 12-month extension will help very much,” he said.

Last year, the special inspector general for the Troubled Asset Relief Program, which funded the administration’s mortgage modification initiative, urged that the minimum period for skipped payments be increased.

Wells Fargo Home Mortgage, one of the nation’s largest mortgage servicers, said it already offered homeowners the ability to skip up to 12 months of payments “in some cases.” From January 2009 to last April, the company has offered assistance to 173,000 customers who have lost their jobs, spokesman Tom Goyda said.

Because the administration hasn’t released details of the changes in its programs, Wells Fargo would not comment specifically on them, he said.