Government-backed mortgage giants Fannie Mae and Freddie Mac announced a new effort earlier this month to mitigate the foreclosure crisis in the form of an unemployment forbearance program explained in Fannie and Freddie’s newly released guidelines. The two organizations’ new guidelines mirror each other and were released only a week apart.
Those of us working in Illinois foreclosure defense law see this is good news for people struggling during hard economic times, especially in recent years as individuals and families work to dig themselves out of difficult, long periods of unemployment. The new program allows for flexibility by mortgage servicers to allow borrowers who are in financial trouble because of a lost job, often to the point of being near default on their mortgages. The potential participant must have monthly housing expenses at least 31 percent of their monthly income to qualify.
The program works by reducing payments for a specified period while the borrower is unemployed. Another great part of the new unemployment forbearance program is that while the borrower is enrolled in this program, the mortgage servicer is prohibited from proceeding with foreclosure. Late fees cannot accrue against the borrower while enrolled in this program either. If the borrower gets an additional loan modification from either the Home Affordable Modification Program or another Fannie or Freddie initiative, the guidelines provide that late fees will be waived.
Our Oak Park foreclosure defense lawyers were interested to find that a mortgage servicer can approve this forbearance program for an eligible borrower for up to six months without getting Fannie Mae or Freddie Mac’s approval. This can be based upon verbal information provided by the borrower that is documented in their case file. The mortgage servicer is required to determine the status of the borrower’s unemployment between day 120 and 135 of participation in the forbearance program. There is a possibility of extending for another six months if the borrower remains unemployed. Those extensions must be done on a case-by-case basis and submitted to Fannie Mae or Freddie Mac for review. And the guidelines allow for only the one year forbearance maximum, so if the borrower is still unemployed after a year that is still the end of the line in terms of this program.
Our Oak Park foreclosure attorneys are hopeful that this program can assist those struggling in our area with longer term unemployment. This could give crucial breathing room for the unemployed to keep their house while hunting for a new job.
This program specifically does not include second houses or investment properties, as it is only focused on helping the unemployed stay in their principle residence. It is conditional on the unemployed borrower actively seeking employment while participating in the program.
Officially these new guidelines go into effect no later than March 1, 2012 for Fannie Mae and February 1, 2012 for Freddie Mac. Fannie is encouraging mortgage servicers to put the guidelines, and accompanying programs such as this one, into affect as soon as possible though, hopefully even before the March 1 deadline.
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