The Obama Administration has rolled out a series of small initiatives designed to help borrowers facing foreclosure. They supplemented the Hardest Hit Fund with the Emergency Homeowner Loan Program (ELHP), designed to use $1 billion to give no-interest loans of up to $50,000 to distressed borrowers who have suffered from unemployment, underemployment or medical catastrophe. At most that will help 30,000 borrowers, total. There’s the Principal Reduction Alternative (PRA), which provides incentives for banks to provide principal reductions. So far there are 21,000 trial modifications, total. HAMP guidelines have been altered and incentive payments have been withheld to force compliance. But HAMP is getting only 30,000 new trial mods a month into the system. So on top of that today is another small but significant program.

The administration today will announce that two programs providing unemployed homeowners a few months’ forbearance on their mortgages will be extended to 12 months, said three administration officials speaking anonymously because the program has not been announced. Thousands of homeowners could benefit from the additional time, although not all jobless homeowners will be eligible […]

The Federal Housing Administration began offering four months of mortgage relief to unemployed homeowners nearly a decade ago. Banks and mortgage brokers participating in the program must comply with the new standard. The Home Affordable Modification Program has been offering three months of relief to the unemployed since last year. Those who service mortgages under the program are expected to follow its voluntary guidelines.

My understanding is that servicers are happy to provide forbearance, because the unpaid months get tacked onto the back end, and that boosts their percentage payments off of the mortgage. But 12 months of forbearance is fairly significant.

The program has been announced, and the 12-month forbearance period, extended from 3-4 months, is “required… wherever possible under regulator and investor guidelines.” This gives the unemployed 12 months without mortgage payments to seek a new job and perhaps make a modification to their loan. This is from the press release from HUD:

“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” U.S. Housing and Urban Development Secretary Shaun Donovan said. “Today, 60 percent of the unemployed have been out of work for more than three months and 45 percent have been out of work for more than six. Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home.”

All FHA-approved servicers must participate in FHA’s Loss Mitigation Program, which includes the Special Forbearance program. In addition to extending the forbearance period and removing the up-front hurdles for borrowers, the FHA also reemphasized its requirement that servicers conduct a review at the end of the forbearance period to evaluate the borrower for all additional, applicable foreclosure assistance programs and notify the borrower in writing whether or not he/she qualifies for any other available option. If the borrower does not qualify for any foreclosure assistance option, the servicer must provide the borrower with the reason for denial and allow the borrower at least seven calendar days to submit additional information that may impact the servicer’s evaluation.

Again, these are small steps, but they show that the Administration is very sensitive to the major crisis of foreclosures that is a lead weight on the economy. Obama expressed this at his Twitter town hall yesterday. It could explain that out-of-left-field $60 billion headline number for the state AG settlement that showed up in the New York Post yesterday. I think a lot of these initiatives are meant to generate headlines, in fact. In reality, these measures will help a select group of borrowers, though not enough to fully arrest the foreclosure crisis. The last implementation of something like this, by the Treasury Department, led to only 7,397 borrowers being helped.

PICO, the interfaith coalition, praised the new regulations today. Coalition member Rev. Lucy Kolin said in a statement, “Today’s action is yet another step toward breaking the link in America between losing your job and losing your home. It’s only fair that the big banks who caused so much job loss in America extend relief to the millions of families who’ve lost their jobs as a result of the financial crisis.”

David Dayen

David Dayen