WASHINGTON -- The Obama administration announced Thursday that its signature anti-foreclosure program and the Federal Housing Administration would be getting a little more generous to struggling homeowners who are out of work through no fault of their own.
In making the announcement, the administration is finally heeding homeowner advocates and federal auditors who have called for extended forbearance for unemployed homeowners for over a year.
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.)
"Today's action is yet another step toward breaking the link in America between losing your job and losing your home," said Rev. Lucy Kolin of the PICO National Network, a coalition of faith-based community organizers. "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."
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 administration's Home Affordable Modification Program, which President Obama said in 2009 would help as many as three to four million homeowners modify their mortgages, is not on track to meet its goal. According to the Treasury Department's most recent data, the program has resulted in permanent modifications for 630,000 homeowners, while more than 850,000 HAMP modifications have been canceled. Stories chronicling homeowner frustration with the program are legion.
"We've had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up," Obama said during a "Twitter town hall" on Wednesday. "But of all the things we've done, that's probably been the area that's been most stubborn to us trying to solve the problem."
The biggest changes to the program came in the summer of 2010, when the Treasury Department began requiring homeowners to thoroughly document their income to verify their eligibility before they could begin three-month "trial" modifications. Homeowners who successfully make three trial payments -- usually hundreds of dollars cheaper than full payments -- are supposed to be put in "permanent" modifications. The modifications lower payments to 31 percent of income by cutting interest rates, extending the life of the loan, and, in a small minority of cases, by cutting principal owed.
Last summer the administration also said that unemployment benefits could not be counted as income, but that people receiving benefits could apply for a new forbearance program that would reduce or suspend payments for three months or until the homeowner found a job, whichever was shorter.
On Thursday, the administration announced that the forbearance period for HAMP applicants and homeowners with FHA loans could last as long as 12 months.
"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."
Additional reporting by Shahien Nasiripour.
This story has been updated to include comment from Neil Barofsky.