Forbearance Help for the Unemployed

This week President Obama announced adjustments to the Federal Housing Administration’s (FHA) requirements that will require mortgage loan servicers to extend the forbearance period for unemployed homeowners to 12 months. The previous period was 4 months. The President also has plans for loan servicers who participate in the Making Home Affordable Program (MHA) to extend the minimum forbearance period to 12 months wherever possible.


This is a huge victory for homeowners who wish to remain in their homes during unemployment. This will make it easier for unemployed borrowers to qualify for forbearance. This prevents unemployed homeowners from filing foreclosure or bankruptcy. A bankruptcy or foreclosure greatly lowers your credit score. However, forbearance does not impact your credit score as much as a bankruptcy or foreclosure.

A forbearance is when your mortgage company reduces or suspends your mortgage payments for a specific period of time. When that time period expires, you resume making your regular payments. You will either have to pay a lump sum for the payments missed or additional partial payments for a specific amount of time to bring your loan current. Here are 4 ways to apply for mortgage forbearance:

1. Examine your current situation. Determine which option is right for you. You should not apply for forbearance if you previously were not able to pay your mortgage when you were employed. Contact your loan provider to get more information on how to apply for forbearance and terms. Another option may be better for your situation such as loan modification, short-sale, etc.

2. Contact your lender. Write your lender a hardship letter asking for a forbearance stating the reasons why you need forbearance versus other mortgage assistance options. The letter should include: time period of the forbearance request, whether payments will be made, monthly amount paid, proof of your financial hardship, a plan to overcome your financial hardship before the forbearance period expires, a listing of your current income and monthly expenses, and steps taken to assist with the financial hardship prior to requesting a forbearance. If you cannot come to an agreement on the terms then forbearance might not be the right option for you.

3. Negotiate. Work with your lender to negotiate the best terms you can afford for the forbearance agreement. Filing forbearance prevents your mortgage company from filing foreclosure and helps maintain your relationship with your mortgage company by showing that you are willing to work with them to pay back the money owed. Ensure all of your questions are answered before signing any paperwork.

4. Advice. Consult a lawyer to get legal advice and tax implications regarding filing forbearance. A lawyer can assist with writing the hardship letter and negotiating with the mortgage company on your behalf.

Fannie Mae Still Asking for Help

The latest request from Fannie Mae is for an additional $15 billion from the government because of losses in the third quarter which it claims is due to homeowners falling behind on their mortgage payments and the ever increasing unemployment rate. The default rate increased to 4.7% and is even higher in Florida and Nevada, with over 11% of the mortgage loans in default.

"There is significant uncertainty regarding the future of our business, including whether we will continue to exist, and we expect this uncertainty to continue," Fannie Mae said.

Fannie Mae and Freddie Mac guarantee approximately 31 million mortgage loans or about half of the mortgages in the U.S.

Fannie Mae lowered the requirements for borrowers prior to the recession by offering high risk loans which are now defaulting including homeowners with good credit.
This is the fourth request by Fannie Mae for government aid which now totals $60 billion in aid so far.

Fannie Mae stated that it would allow some homeowners who are facing foreclosure to rent their homes for a year to help reduce the number of homeowners losing their homes.

This new program is called the "Deed for Lease" program and will allow homeowners to transfer their deed title to Fannie Mae by signing a one-year lease which includes potential month-to-month extensions after the one year period.