Through the initiative, which becomes effective on August 1, 2011, mortgage servicers and banks are required to permit eligible homeowners to defer part or all of their mortgage payments for 12 months or more while they seek employment.
Although the full mortgage with accumulated interest would still be owed, borrowers who pay half their mortgage can have up to 24 months of forbearance (an agreement between the lender and the borrower to delay foreclosure) compared to 12 months for borrowers who don’t make any payments.
Who will this new initiative help?
Housing and Urban Development Secretary Shaun Donovan expects to assist “tens of thousands of families” with this initiative and said, “The biggest driver of foreclosures today remains unemployment.” Donovan stated the expanded timeframe is necessary and reflects “how long it takes unemployed borrowers to find a job.”
With the national unemployment rate nearing 10 percent, Americans are experiencing the longest average length of unemployment since those figures were first recorded in 1948. The average length the jobless have been out of work is longer than 9 months.
Do you qualify?
While this new plan serves as a temporary safety net for some Americans, it has been criticized by some including the St. Petersburg Times as being too limited since it only applies to loans backed by the Federal Housing Administration (FHA). It has limited scope because only 14 percent of all mortgages are backed by the FHA.
The Obama administration acknowledged this and stated, “Given the size of the housing market, no federal program is going to be able to solve the housing problem.” Additionally, some unemployed borrowers who qualify for the Treasury Department’s Home Affordable Modification Program (HAMP), will also benefit from the initiative introduced last week.
Aside from assisting families in need, preventing additional foreclosures has obvious benefits such as helping stabilizing the housing market. Critics suggest Freddie Mac and Fannie Mae, who own or guarantee roughly half of the nation’s mortgages should be enlisted to participate since American taxpayers invested $163 billion to help keep them from financial ruin.
For more information on this initiative read the complete fact sheet on the U.S. Department of Housing and Urban Development website.