barack_obama_signs.jpgWASHINGTON — the Obama Administration has announced changes to Federal Housing Administration (FHA) rules that now require mortgage servicers to extend the forbearance period for unemployed homeowners to 12 months.

The Administration also intends to require servicers participating in the Making Home Affordable Program (MHA) to extend the minimum forbearance period to 12 months wherever possible under regulator and investor guidelines, a statement from the U.S. Department of Housing and Urban Development said.

The changes will provide help for unemployed homeowners trying to stay in their homes while looking for work and are intended to set a standard for the mortgage industry to provide more robust assistance to unemployed homeowners in the economic downturn, the statement said.

The changes to FHA’s Special Forbearance Program  require servicers to extend the forbearance period for FHA borrowers who qualify for the program from four months to 12 months and remove upfront hurdles to make it easier for unemployed borrowers to qualify. 

“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 in the statement.

“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,” Donovan said.

Changes to MHA’s Home Affordable Unemployment Program require participating servicers to extend the minimum forbearance period from three months to 12 months for eligible unemployed homeowners, whenever possible, subject to investor and regulator guidance for each mortgage loan.  Additionally, forbearance under the program will become available to borrowers who are seriously delinquent.

All FHA-approved servicers must participate in FHA’s Loss Mitigation Program that includes the Special Forbearance program.  In addition to extending the forbearance period and removing the up-front hurdles for borrowers, the FHA also re-emphasized 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 he or 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. 

The statement said the changes build on the Administration’s initiatives to support unemployed borrowers through the $7.6 billion Hardest Hit Fund, established in February 2010, and the $1 billion Emergency Homeowner Loan Program which it complements.