The Mortgage Bankers Association (MBA) has announced that it has developed a concept for a new forbearance program that would allow qualified borrowers who had lost their jobs to remain in their homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower's mortgage payment to an affordable amount for up to nine months while the homeowner looked for employment.
"The vast majority of new distressed borrowers we are seeing involve the loss of income," said John A. Courson, president and chief executive officer of the MBA. "This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification."
Under MBA's proposal, loan servicers that participate in this program would reduce monthly payments to an affordable level based on household income. Borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months of losing his or her job at 75 percent of the borrower's previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once reemployed, the borrower would be evaluated for a modification under the Obama Administration's Home Affordable Modification Program (HAMP).
"Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months," added Courson. "That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage. Further, borrowers with such a precipitous drop in income can't qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job."
MBA suggests that some participating servicers would need access to special loans through Treasury to supply funds to servicers so they could continue to advance payments to investors during the extended forbearance period. The program would need to be voluntary and flexible due to financial accounting considerations.
MBA created this program through a special task force of its members. MBA also consulted with Fannie Mae and Freddie Mac. Last week, MBA representatives met with officials from the White House, the Department of Treasury and the U.S. Department of Housing & Urban Development (HUD) to present the proposal.
For more information, visit www.mortgagebankers.org.