The Obama administration on Thursday started a new initiative that would require mortgage lenders to give some unemployed homeowners who have fallen behind in their payments up to a year before the banks can foreclose on their homes. The policy change allow homeowners 12 months — instead of the current four months — to catch up on their mortgage payments if they lost a job and have a mortgage backed by the Federal Housing Administration, White House officials said. The expanded program will help “tens of thousands” of homeowners, according to Housing Secretary Shaun Donovan.
The Obama administration announced the changes a day after the president conceded that his economic policies have not done enough to restore the lagging housing market.
“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 Wednesday. “We’ve made some progress … but it’s not enough. And so we’re going back to the drawing board.”
Giving unemployed homeowners a longer “grace period,” known as forbearance, to delay mortgage payments while they search for a job will keep families in their homes longer — and that’s an immediate political plus for the president.
It’s rare when federal action can provide such direct and rapid relief to individuals.
But some bankers and mortgage brokers are wincing at the thought of another federal program “postponing the inevitable” and keeping people in homes they can’t afford, said Michael Sterner, chairman of the Maryland Mortgage Bankers Association.
“It’s like curing symptoms and not curing the disease,” Sterner said. “From a banker’s viewpoint, these things aren’t good for us. It’s horrible for us and it’s horrible for the market.”
It’s politically unsavory to fight for free enterprise when families’ homes are at stake, Sterner acknowledged. But if the government continues delaying foreclosures, the housing market will take even longer to bounce back, he said.
On the eve of his re-election bid, Obama said more must be done to help the struggling middle class.
“We’ve been looking for ways we can go farther to help borrowers,” Donovan said.
Unemployment is now the biggest driver of foreclosures, rather than the subprime mortgages that created the foreclosure crisis beginning in 2007.
The Federal Housing Administration is responsible for roughly 10 percent of all outstanding mortgages, and estimates that on a monthly basis, about 3,500 of its borrowers are delinquent on their mortgage payments because of unemployment.
More than 17,000 FHA-backed borrowers last year took advantage of the agency’s four-month relief from mortgage payments.
