The New York Times
By: Andrew Martin
July 7, 2011
Help is on the way from the federal government for some homeowners struggling to make their mortgage payments because of prolonged joblessness.
The Obama administration on Thursday announced a beefed-up program that will allow eligible homeowners to skip part or all of their monthly payments for 12 months or more while they search for a new job. Certain homeowners have been eligible to skip payments for three or four months, far shorter than most unemployed people need to get back on their feet.
While officials could not say how many homeowners might qualify for the extended grace period, they predicted that tens of thousands would benefit.
The Obama administration has come under increasing criticism for its efforts to help struggling homeowners avoid foreclosure, especially as housing prices have continued their downward slide. On Wednesday, President Obama himself acknowledged the administration had come up short.
"We're going back to the drawing board, talking to banks, try to put some pressure on them to work with people who have mortgages to see if we can make further adjustments, modify loans more quickly, and also see if there may be circumstances where reducing principal is appropriate," he said.
Mortgage servicers whose loans are backed by Federal Housing Administration insurance will be required to offer payment deferments to eligible homeowners. Roughly 14 percent of active mortgages are backed by the federal insurance.
Servicers who participate in the Treasury Department's mortgage modification program will be asked to postpone payments for unemployed homeowners, though to date, their record at voluntarily modifying loans has been spotty. The changes will not apply to loans owned or guaranteed by the big mortgage companies Freddie Mac and Fannie Mae, which account for roughly half of all mortgages. Still, administration officials said they hoped the entire lending industry would follow the federal government's lead.
"Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home," said Shaun Donovan, the secretary of housing and urban development.
The announcement won praise from housing advocates, who have pushed for the administration to strengthen its programs for the unemployed.
"This action is another step toward breaking the link between losing your job and losing your home," said the Rev. Lucy Kolin, of the PICO National Network, a coalition of faith-based organizations.
"It's only fair that the big banks who caused so much job loss in America extend relief to families who've lost their jobs as a result of the financial crisis."
One major problem in housing is that the administration's signature foreclosure-prevention program, the Home Affordable Modification Program, was meant to help homeowners with adjustable rate loans in which payments spiked upward.
But in recent years, the main cause of foreclosure has been unemployment, not risky loans, and the program has fallen far short of its original goals.
In his remarks Wednesday, President Obama said the housing market had not bottomed out as quickly as his administration expected and that its programs to help homeowners were not helping enough.
Under the revised program, mortgage servicers whose loans are backed by the housing administration will be required to postpone payments for eligible unemployed homeowners for at least 12 months.
In addition, mortgage servicers who participate in the Home Affordable Modification Program would be encouraged to provide similar assistance to unemployed homeowners.
Since the program is voluntary, however, eligibility could be hindered by investor and regulatory restrictions.
The maximum term would be 12 months of deferred principal and interest. That means that if a homeowner makes half a payment each month, they could get 24 months of forbearance, Mr. Donovan said.
Homeowners who are already enrolled in federal programs to defer mortgage payments can apply to get the length of their deferments extended, he said.
The repayment schedule will depend on the homeowners' employment status when the forbearance period ends. If the homeowners have decent-paying jobs, for instance, they will work out a repayment schedule with their mortgage servicer.
The Obama administration has made various attempts to turn around the moribund housing market since it came into office in 2009.
The administration originally predicted that the Housing Affordable Modification Program would help three million to four million homeowners, but to date, there have been roughly 730,000 permanent loan modifications.
And while Congress set aside $46 billion as part of the huge bank bailout to help struggling programs, the administration has spent slightly less than $2 billion of the money.
Recognizing that unemployment was a growing problem in foreclosures, the Treasury Department announced a program last August that would allow unemployed homeowners to defer payments for three months. About 10,000 homeowners have participated.
In addition, HUD received $1 billion last year to provide unemployed homeowners with loans to cover their mortgages for up to 24 months.
While the program was slow to get off the ground, department officials said it was now accepting applications in all 32 states that are participating.
"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," the president said on Wednesday.
"But of all the things we've done," he said, "that's probably been the area that's been most stubborn to us trying to solve the problem."