Home Loan Advice

Basically, a mortgage forbearance is designed to allow a reduction of payments or a delay in making payments over a short time period, generally less than 6 months. Up until the recent housing crunch, lenders would make such agreements in response to a borrower’s temporary financial setback, such as a job loss or serious illness or injury. The deal usually required the homeowner to catch up on any reduced or missed payments within 6 months to a year.

Under the expansion of the Home Affordable Modification Plan (HAMP), mortgage lenders who’re participating in the program will be required to offer a forbearance plan to borrowers who’re unemployed. These plans are required to be for at least 3 months duration and may be up to six months under certain circumstances. Payments, if there are any under the plan, have to be reduced to 31% or less of the borrower’s gross income.

For a homeowner to be eligible under the HAMP plan they must first meet the typical program standards which are owner occupancy, a loan balance of less than $729,750 and a loan origination date prior to January 1, 2009. Beyond this, the mortgage, while it can be current, can’t be more than 90 days overdue. Proof of receiving unemployment benefits is another requirement. Additionally, a borrower must request the forbearance, it can’t just be given automatically.

As part of the program, should the unemployed homeowner find work during the forbearance period and their regular mortgage payment would exceed 31% of their gross income, the borrower has to be given the opportunity to seek a permanent loan modification. The idea here is to move the troubled homeowner from the temporary payment reduction to a permanent principle reduction under HAMP. The Obama administration is offering lenders incentives to do this kind of loan forgiveness but banks have been slow to implement this costly plan.

Should the homeowner not qualify for a loan modification under the Home Affordable Modification Plan they are expected to fulfill their obligations under their mortgage loan. This means to pay back the difference between any reduced payments and the full payment, typically rather quickly.

If the homeowner remains unemployed or otherwise unable to make mortgage payments at the end of the forbearance period then other foreclosure alternatives would be considered such as a short sale or deed in lieu of foreclosure.

Should you wish to participate in a Home Affordable Modification Plan approved mortgage forbearance make sure that such a plan will work for you and won’t just serve as a way to postpone foreclosure and get you in a deeper hole financially.

Related posts:

1. How To Get a Mortgage Forbearance Agreement A mortgage forbearance is something you might consider if you encounter a temporary financial setback that causes you to fall behind on your mortgage. An example of this would be a health problem or a job loss where your prospects of recovering your original income are quite likely. Remember that...
2. Second Lien Mortgage Payments Rescue Plan The US Treasury Department recently announced that they will use $50 billion of the housing rescue fund to pay off mortgage investors. By accepting this payoff mortgage servicers will either erase the loan debt or reduce the monthly payments on the loans. This change promises to reduce the monthly payments...
3. Federal Home Loan Modification Plans Are you investigating the new federal home loan modification plans? They promise much needed relief for homeowners who are dealing with mortgage payments and possibly facing foreclosure should they continue to struggle. There is a new federal program that will assist Americans homeowners in refinancing or modifying their mortgages. This...
4. Mortgage Loan Modification Problems Have you had problems trying to get a mortgage loan modification? Many people have found that home loan lenders to be less than willing to make loan modifications. They lose paperwork, fail to follow through on promises, act rude and engage in other forms of bureaucratic obstruction. Why is this...
5. Government Short Sale Program Beginning on April 5, 2010 lenders who participate in the Home Affordable Modification Program have to provide borrowers with the option to carry out a short sale rather than a foreclosure. Mortgage lenders must provide the minimum amount needed for an acceptable short sale offer should a borrower’s mortgage not...