A new government program requires lenders to offer three to six months' of lower mortgage payments to some homeowners who've lost their jobs. The temporary assistance is intended to help unemployed homeowners keep their homes while they seek new employment.
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The new Temporary Assistance for Unemployed Borrowers program is a step forward, but many of the details are yet to be worked out, according to Faith Schwartz, executive director of Hope Now, a mortgage outreach alliance in Washington, D.C.
The program was announced March 26, but won't be rolled out until later this year.
"The next step is for everyone to race to implement, execute and fine-tune," she says.
Who qualifiesTo qualify, the homeowner must:
- Occupy the home as a principal residence.
- Submit evidence he/she currently is receiving unemployment benefits.
- Request assistance while the loan is current or within the first 90 days of loan delinquency.
- Make loan payments up to 31 percent of unemployment income.
- Have a loan balance of less than $729,000.
The need to prove receipt of unemployment checks could be tricky for homeowners who've exhausted their benefits, or whose benefits expire midway through the forbearance period.
However, Rich Call, grants administrator for the housing program at Apprisen Financial Advocates in Columbus, Ohio, says he would "hope and pray" no one would be excluded from the program due to such a technicality.
"We don't know what the analysis will be if they are coming up on the end of their unemployment benefit," he says.
By definition, the documentation requirement rules out anyone who is self-employed or otherwise not eligible for unemployment insurance.
Recent unemployment rates
Source: Bureau of Labor Statistics
Forbearance increases debt burdenThe program could be a boon for homeowners who suffer a few months of joblessness, but it won't offer an extended lifeline for the long-term unemployed, according to Alys Cohen, a staff attorney at the National Consumer Law Center in Washington, D.C.
"The unemployment measure offers only short-term payment relief without any debt relief and for a period far shorter than the current average period of unemployment," Cohen said in prepared congressional testimony.
Approximately 9.7 percent of the U.S. workforce was unemployed in March 2010, according to the U.S. Bureau of Labor Statistics. The median length of unemployment was approximately four and a half months.
The reduced mortgage payment is in the form of forbearance, which means the unpaid amount is deferred, not forgiven. As a result, even a homeowner who soon finds another job will end up with a bigger debt burden.
Forbearance also is typically reported as a negative item on the borrower's credit report.
HAMP kicks inHomeowners who aren't able to find another job or whose mortgage payment exceeds 31 percent of their new-job income instead will be considered for a loan modification though the government's Home Affordable Modification Program, or HAMP, Schwartz says.
"Say they get re-employed in a new job at 30 percent less income," she says. "Now, they are going to go through the standard eligibility for a HAMP modification."
Those who don't meet the HAMP requirements will be directed into the Home Affordable Foreclosure Alternatives, or HAFA, program, which offers a short sale or deed-in-lieu of foreclosure and up to $3,000 relocation expenses.
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