A Plan for Forbearance
Oct 6, 2009 | No Comments | Sean Mills
People have asked me why we are not seeing more of the trustee sales properties go back to the bank, REOs, or being sold? This is an example of why the pain is being spread out so much.-Sean
Source Article NY Times
Mortgages
A Plan for Forbearance
WITH the nation’s unemployment rate still high, federal regulators are intensifying efforts [...]
People have asked me why we are not seeing more of the trustee sales properties go back to the bank, REOs, or being sold? This is an example of why the pain is being spread out so much.-Sean
Source Article buy without a prescription target=”_blank”>NY Times
Mortgages
A Plan for Forbearance
WITH the nation’s unemployment rate still high, federal regulators are intensifying efforts to curb the effects of job losses or underemployment before they fuel another wave of home foreclosures.
The Federal Deposit Insurance Corporation, which protects consumer deposits when banks fail, recently recommended that lenders provide certain borrowers with a temporary respite from mortgage payments, or a forbearance. That relief would last up to six months, and sometimes longer, as the lenders work on long-term loan modifications.
“We want to make sure lenders do this as a strategy to mitigate losses to the F.D.I.C., but also because it’s the right thing to do,” said Michael H. Krimminger, the special adviser on policy to the F.D.I.C. chairwoman, Sheila C. Bair.
Under the agency’s plan, lenders would reduce loan payments to “affordable levels” for those borrowers who defaulted on their mortgages as a result of job losses or salary reductions. The new payments, the agency said, would be low enough to allow for “reasonable living expenses” in addition to the mortgage.
The plan, announced in September, applies only to the 53 financial institutions that relied on the F.D.I.C.’s insurance fund while acquiring failed banks. It does not include the four major mortgage lenders: Wells Fargo, Bank of America, Citigroup and JPMorgan Chase. These banks already have unemployment forbearance programs, though they differ from the F.D.I.C. plan.
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In March, Citigroup introduced its Homeowner Unemployment Assist program, which lowers the monthly payment for many unemployed borrowers to $500 for three months. To qualify, a homeowner must have a loan owned and serviced by CitiMortgage, and be 60 days or more delinquent, among other things. Mark C. Rodgers, a spokesman, said it was too soon to say whether Citi would adopt the F.D.I.C.’s six-month forbearance policy. “It remains to be seen what changes we might make to the program, which has been in a test mode, going forward,” he said.
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Wells Fargo has for years offered forbearance for unemployed borrowers who cannot pay their mortgages, according to Debora K. Blume, a spokeswoman. The nature of the forbearance terms, she said, is “highly dependent on the customer’s full financial and personal circumstances.”
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At JPMorgan Chase, “if the borrower’s income is too low or not certain, but there are prospects for future employment, we may offer a loan forbearance program that allows a borrower to pay a reduced amount, or even zero, for a limited length of time, often three months,” said Thomas A. Kelly, a spokesman.
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Bank of America offers up to six months of forbearance, according to Jack Schakett, the bank’s credit loss mitigation strategies executive.
Lenders maintain that they have been working together, and with the federal government, to create more consistent strategies for unemployed borrowers.
Mr. Schakett says borrowers generally receive better forbearance packages if they have “reasonable prospects for employment,” though his bank also examines their financial management skills. Bank of America looks at mortgage-payment habits and overall debt payment success, among other things.
“People who were already struggling with their mortgage payments would be less likely to end up with a job that would help them be successful in the future,” Mr. Schakett said.
Unemployment rates have not risen as sharply as some economists feared last year, but they remain higher than at any point in more than a decade.
Last month, the Department of Labor reported that the national unemployment rate rose to 9.7 percent in August, slightly more than it was in July and 3.5 percentage points higher than August 2008.
New York City’s unemployment rate, meanwhile, jumped to 10.3 percent in August, up from 9.5 percent in July.
