If you are unemployed and behind on your mortgage or in danger of default there are two new programs just announced this month that may offer some hope in the form of reduced or suspended mortgage payments. Fannie Mae and Freddie Mac have announced new Unemployment Forbearance Programs to assist borrowers who are experiencing financial hardship due to unemployment. Loan servicers are encouraged to implement these new policies and procedures immediately but the Freddie Mac program is required to be in place effective February 1, 2012 and the Fannie Mae program March 1, 2012.
The eligibility requirements for borrowers whose mortgages are part of either Fannie’s or Freddie’s portfolio are essentially identical. Borrowers must have a financial hardship due to unemployment. Borrowers must be delinquent on their loans. The mortgage must be for a property that is the borrower’s primary residence and the residence cannot be vacant, condemned or abandoned.
The initial forbearance does not require either of the Government Sponsored Enterprise’s (GSE) approval as long as it is not for more than six months. The reduced or suspended payments can be extended but not so long that it would cause the mortgage to be delinquent for more than 12 months. Additionally, any extension would need to be approved by the appropriate GSE and there would be a couple new eligibility requirements placed on the borrower. The borrower could not have cash reserves that exceed 12 months of monthly housing expense and the monthly housing expense must be greater than 31% of household income (excluding unemployment benefits).
Now, here is the kicker. Forbearance is not synonymous with forgotten. Once the borrower is again employed or is no longer eligible for the program the money that the borrower otherwise would have paid during the forbearance period is required to be paid back. It can be paid back in a lump sum or a repayment plan. Borrowers unable to repay must be considered for another foreclosure prevention plan according to procedures outlined by Fannie Mae and Freddie Mac.
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