Eyeing Solutions For Unemployed Borrowers

Written by John Clapp
on July 08, 2010 No Comments
Categories : Blog View

[u]BLOG VIEW[/u][/i][/b]: [b]Months after a consensus was formed that unemployment and under-employment, and not exotic loan products, are underpinning the current foreclosure crisis, the U.S. Treasury Department's Home Affordable [link=http://mortgageorb.com/e107_plugins/content/content.php?content.5879]Unemployment Program[/link] (UP) took effect last Thursday.[/b] A day later, the Labor Department's jobs report for June showed a slight decline in unemployment, but also that fewer private-sector jobs were added than economists expected. Announced three months ago, UP encourages servicers to reduce or suspend payments for unemployed borrowers. The minimum forbearance length is three months. If investor and regulatory requirements allow, servicers can decide to extend the forbearance for up to six months, according to the Treasury's guidance. UP was crafted to help borrowers stay in their homes while seeking re-employment, and likely to its benefit, the program is more tightly focused than its Home Affordable stablemate, HAMP. But UP is not the only new loss mitigation program to focus on unemployment. Four out the of the five state housing finance agency (HFA) proposals submitted under the [link=http://mortgageorb.com/e107_plugins/content/content.php?content.6141]first round[/link] of the Treasury Department's HFA Hardest-Hit Fund deal directly with unemployment. HFAs in California, Florida, Michigan and Arizona all plan to offer some form of borrower assistance to the unemployed and under-employed. All four HFAs will provide mortgage payment subsidies, and the Arizona agency will additionally help pay off unemployed borrowers' second mortgages where the subordinate lien is preventing modification of the first. The second round of the Hardest-Hit Fund will channel federal funding to HFAs in states with areas of high concentrations of unemployment. [link=http://mortgageorb.com/e107_plugins/content/content.php?content.6018]Two agencies[/link] have released details about their proposals, which are awaiting the Treasury's approval. Oregon Housing and Community Services' proposed Mortgage Payment Assistance program, if given the green light, would provide up to six months of payment assistance, while Rhode Island Housing is looking to provide up to $6,000 per household for borrowers who have suffered temporary financial setbacks. [link=http://oversight.house.gov/index.php?option=com_content&task=view&id=5001&Itemid=2]Congressional testimony[/link] last month from several servicers shed light on the private sector's attempt to help the unemployed. All five of the servicers called to testify – CitiMortgage, Bank of America, Wells Fargo, JPMorgan Chase and American Home Mortgage Servicing Inc. – informed lawmakers that their companies have implemented forbearance programs for borrowers who are identified as unemployed and as having suffered a financial hardship. CitiMortgae CEO Sanjiv Das' testimony gives cause for optimism, at least as it relates to using UP as a means for transitioning borrowers into HAMP. Citi launched its [link=http://mortgageorb.com/e107_plugins/content/content.php?content.3079]Homeowner Unemployment Assist[/link] program in March 2009. A component of the bank's Homeowner Assistance program, the program offers help to borrowers whose mortgages are owned and serviced by Citi. According to Das, the program has enabled borrowers to get into HAMP. ‘The fact that Unemployment Assist allows people to get into HAMP is a very powerful outcome that needs to be noted,’ Das said. He also observed that Citi's borrower requirements were few; the bank only requires proof of unemployment and evidence that the mortgaged property is owner-occupied. Das further suggested that UP's paperwork requirements may be too nuanced and that the key to Unemployment Assist is its simplicity. ‘I believe the idea of delay isn't as bad as it's made out to be,’ Das said of the forbearance instrument. ‘Oftentimes, borrowers just need a pause so they can regain employment.’ Mike Heid, co-president of Wells Fargo Home Mortgage, noted another benefit of forbearing payments for the unemployed. According to his testimony, borrowers who receive forbearances have an easier time adjusting to their eventual modified loan amounts than borrowers who go for months payment-free. Bank of America's head of mortgages, Barbara Desoer, said the company supports UP and is also considering a proprietary program that would extend assistance beyond six months. A policy proposal put forth earlier this year by the Mortgage Bankers Association that appears to have been the model for the Treasury's UP recommended extending forbearances for up to nine months. On the other side of the coin, forbearances pose challenges to servicers, who must advance payments to investors regardless of whether the borrowers make good on their reduced payments. Forbearances that last longer than three months become a huge expense, according to testimony from David M. Friedman, president of American Home Mortgage Servici

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