Mortgage Payment Forbearance for Unemployed - A Stop-gap Debt Relief Measure
Many borrowers have had trouble making their mortgage payments the past few years. The number of borrowers that defaulted on their mortgages has sky-rocketed. Unemployed borrowers and those with cuts in their income have especially had serious problems making payments. Stressed out borrowers have been looking for any kind of help they can find to solve their mortgage problems.
This article addresses the issue of forbearance on mortgage payments, which is one program to help borrowers facing default.
Mortgage loan forbearance is an agreement between the lender and the borrower changing the terms of the loan. It allows the borrower to temporarily stop making payments without causing the lender to start collection procedures, including foreclosure. Mortgage forbearance is not a long-term solution. Forbearance is a measure to aid borrowers with temporary financial problems, such as unemployment or interruption in income.
The Obama Building to Last Program
On February 1 2012, President Obama and the White House released a fact sheet explaining the “Building America to Last” program. The plan addresses different aspects of the housing and mortgage market, including refinances, loan modifications, and rentals. In an attempt to aid the ailing housing market, President Obama's plan includes the following seven points:
- Broad Based Refinancing Plan
- Homeowner Bill of Rights
- Announcement of Initial Pilot Sale in Initiative to Transition Real Estate Owned (REO) Property to Rental Housing to Stabilize Neighborhoods and Improve Housing Prices
- Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work
- Joint Investigation into Mortgage Origination and Servicing Abuses
- Putting People Back to Work Rehabilitating Homes, Businesses and Communities Through Project Rebuild
- Expanding HAMP Eligibility to Reduce Additional Foreclosures and Help Stabilize Neighborhoods.
Forbearance on Mortgage Payments: Avoiding Foreclosure
Many homeowners find it difficult to make their monthly payments. Sometimes this is due to a loss of income or a slew of unexpected medical expenses. When borrowers cannot make their payments, they have limited options, including:
- Loan modification,
- Selling the property (directly or through a short sale or a deed-in-lieu),
- Default, and
The Obama plan addresses many of these issues.
A major reason many borrowers cannot make payments on their mortgage is due to a job loss or loss of hours at work. When income drops to the point that the mortgage payment can't be made, borrowers turned to their lenders for help. As too many borrowers have discovered, that help is not always forthcoming.
Getting the lender to agree to modify a loan is time-consuming and difficult. Even in cases where a borrower seemingly meets all the qualification requirements to modify the loan, accomplishing the modification has been a problem. The different loan modification programs that have been trotted out so far, such HAMP (Home Affordable Modification Program) have ended up helping far fewer people than expected.
The Obama Proposal — 12-Month Forbearance for Unemployed
In the summer of 2011, a 12-month mortgage forbearance plan was implemented for unemployed borrowers in the HAMP and FHA programs. This increased the time from 3 or 4 months for the respective programs. Since the average unemployed person spends more than four months looking for a job, this increased period reduces the stress on a borrower who cannot make mortgage payments. It also means that the borrower will not be forced into default and foreclosure.
The White House forbearance program that was announced includes the following points:
- Fannie Mae and Freddie Mac loans: These loans cover about 50% of the mortgage market. The forbearance for unemployed will increase from 3 months to 12 months.
- Major Servicers: Key servicers, including Wells Fargo and Bank of America have also joined in the 12-month forbearance plan. The big lenders also realize that efforts must be made to help borrowers who cannot make mortgage payments, and avoid the default and foreclosure process.
- Industry Norm: The Administration is pushing for, and sees signs of, the mortgage servicing industry moving to an extended forbearance plan.
In Default and Facing Foreclosure: What Should I Do?
The Obama plan for a 12-month forbearance is for those who are unemployed and cannot make their mortgage payments. This is a big step to help reduce the stress for those with diminished income. It gives distressed borrowers a chance to catch their breath.
Forbearance is not a gift. The interest on the loan is rolled into the loan,so the mortgage balance increases. All forbearance plans are administered by your mortgage servicer. Forbearance should be used as a last resort.
Whenever you have a problem making a mortgage payment, contact your servicer immediately. Find out what type of arrangements can be made. Forbearance plans have technical terms and legal conditions attached. Make sure that any agreement is clearly explained to you, in terms you understand.
Remember to look at your bigger financial picture. Although the Obama plan deals with unemployed mortgage forbearance, anyone with a problem making mortgage payments should be in touch with their servicer. However, do not stop there. Look at your complete financial picture.
Many times the mortgage payment is just one of many debts that is hard to pay. Because paying a mortgage usually takes priority over other debts, borrowers with mortgage problems often have other financial problems, too. Many borrowers run up big credit card debts to pay off bills during difficult times, trying anything they can to hold things together.
Sometimes a solution to a mortgage problem can be found in handling other financial obligations at a lower cost. If you can get payment relief on other debts, you can free up cash for essential expenses, such as your mortgage payments. Bills.com provides many articles and resources about debt relief to help you find the best way to improve your finances.