By Kevin Chiu
Mortgage servicers will be required to forgive a year’s worth of mortgage payments under new guidelines proposed by the Making 
Home Affordable Program offered by the Obama administration. The adjustment to the FHA program will be provided to unemployed homeowners at risk of foreclosure trying to stay in their homes looking for work.
The change will require mortgage servicers to extend the forbearance period of FHA borrowers only, who qualify for the program for an extension from four months to 12 months. The U.S. unemployment rate reached 9.2% last week nationally, and is much higher in many regions of the country.
“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% of the unemployed have been out of work for more than three months and 45% 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.”
However, the program extension will not be forced on lenders by the Obama administration. Like most of its failed housing programs, the extension will be made “whenever possible subject to investor and regulator guidance for each mortgage loan.”
All FHA servicers are required to participate in the Loss Mitigation Program, which includes forbearance. In addition to extending the length of time, guidelines call for removing 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 they qualify for additional options.
If the borrower does not qualify for any foreclosure assistance option, the servicer must provide the borrower with a reason for denial and allow the borrower at least seven calendar days to submit additional information that may impact the servicer’s evaluation.
The relief adds to initiatives to support unemployed borrowers through the $7.6 billion Hardest Hit Fund, providing assistance in 18 states, which represent the areas hardest hit by the real estate crash.