A reprieve for unemployed borrowers
The New York
Fannie Mae and Freddie
Mac recently extended their foreclosure forbearance programs to give short-term
aid to unemployed homeowners, but housing counselors warn that these borrowers
will need to look at longer-term solutions.
Making sense of the
- In a forbearance program, a
lender agrees not to foreclose on a property and gives the borrower
several months’ grace from or reduction in monthly mortgage
payments. The programs work best for temporary setbacks, like job
loss, health problems, or natural disasters.
- There are drawbacks to the
forbearances though. The most-significant drawback is a larger total debt
from the smaller payments. The unpaid balance continues to increase
during this time.
- The new temporary mortgage
payment is often set to 31 percent of the household income; in some cases
lenders agree to accept no payments. Fannie Mae’s extended
unemployment program, first offered in the fall of 2010, limits any
nonpayment or other forbearance plans to one year, with the second six
months requiring approval by both Fannie Mae and the lender.
- However, even with the program in place, the
lender could still report a mortgage as delinquent, which could adversely
affect the borrower’s credit score.
- Because some agreements add onerous term and
conditions, homeowners should also consult with a housing counselor
certified by the Dept. of Housing and Urban Development.
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