The administration has announced a loosening of the rules for its anti-foreclosure program, making it
more generous for unemployed homeowners.
Unemployed homeowners who've fallen slightly behind or are at risk of falling behind on their mortgage payments soon may be eligible for a 12-month forbearance period during which their monthly payments are reduced or suspended. Currently, jobless homeowners receiving unemployment benefits are eligible for just three or four months of forbearance. (Forbearance doesn't mean forgiveness; the loan still has to be repaid.)
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The Special Inspector General of the Wall Street bailout, which funds the modification program, also strongly encouraged the administration to extended the forbearance period, noting that average unemployment spells tend to last a lot longer than three months.
"While it is, of course, gratifying that the Administration has finally adopted our recommendation to extend forbearance for unemployed homeowners from the largely meaningless minimum of three months to a term lengthy enough so that it can actually help families, it remains a mystery why they waited so long," said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program.
The program was intended to help as many as four million homeowners, while to date it has resulted in modifications for 630,000 and more than 850,000 HAMP modifications have been canceled. As of March, only three percent of the $75 billion targeted to the program had been used, about $1.04 billion.
This new policy will certainly ease the burden for unemployed homeowners, giving them more breathing room to get back on their feet, provided that banks comply and, when they don't, that Treasury forces them to.
"Countless families needlessly missed out on the benefits of this common sense approach due to Treasury's intransigence and reflexive deference to the mortgage servicers' opposition to measures designed to improve the HAMP program," added Barofsky, who now serves as a senior research scholar and fellow at New York University School of Law. "One can only hope that this signals a recognition of HAMP's failures and the merits of SIGTARP's rejected, but still relevant recommendations to fix this very broken program."
Barofsky and homeowner advocates have long criticized the Treasury Department for not punishing banks that violate HAMP guidelines, a sentiment heard again in the wake of Treasury's announcement.
"As they have begun to do with other HAMP regulations," Kolin said, "Treasury must be clear with the large banks that failure to swiftly and aggressively market this new Extended Forbearance program to their borrowers will result in significant penalties."