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.)....
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."
It's about damn time. "Implementation delays"? Doesn't sound like it was enough of a priority. Think of all the pain that could have been avoided:
Sandra Allwine has been pleading with her bank for more than two years to modify the mortgage on her Arlington County home. Despite exhausting all her savings and having her daughter move in to help with her $3,000 mortgage payment, Allwine, 65 and unable to find work, is struggling to save her home from foreclosure.
In June, a potential lifeline opened up. The newly launched $1 billion Emergency Homeowners’ Loan Program, or EHLP, is targeting homeowners who are among the most difficult to help: those who fell behind on their payments because of job loss or unexpected medical bills. For many of them, it might be the last chance to save their homes.
“We were normal middle-class Americans who had saved and lived very carefully and frugally . . . and still wound up getting kicked in the teeth,” Allwine said. She applied as soon as she heard about the program.
If she is approved, the government will subsidize Allwine’s mortgage payments for a maximum of $50,000 over two years. After that, the interest-free loan will be forgiven over five years if she stays in her home and stays current on her payments.
EHLP is the latest government program targeting the nearly 1.8 million homeowners like Allwine facing foreclosure. It is going to have to move fast: The program was supposed to start last year, but implementation delays mean that the Department of Housing and Urban Development must spend all its $1 billion by the end of the federal government’s fiscal year, Sept. 30.
That gives homeowners in 27 states, including Virginia, until July 22 to complete their applications. If demand outstrips available funds, HUD will run a lottery to pick successful applicants. Five additional states, including Maryland, are subject to slightly different rules, which gave them more time to spend the funds, because they started taking EHLP applications earlier under similar state-run programs.
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