The Mortgage Bankers Association wants the government to provide backing for a new forbearance program that would allow lenders cut the monthly mortgage payments of unemployed homeowners for up to nine months.
The MBA says its "Bridge to HAMP" program would give unemployed homeowners time to find a job, after which they could apply for a loan modification under the Obama administration’s Home Affordable Modification Program (HAMP).
The HAMP program only provides loan modifications to laid off workers if they have at least nine months of unemployment benefits remaining, and a Congressional Oversight Panel created to oversee the $700 billion Troubled Asset Relief Program (TARP) has warned that the HAMP program is too narrow in scope to address foreclosures caused by unemployment.
The report projected that the HAMP program will use $42.6 billion in TARP funding to support up to 2.6 million loan modifications, but that if unemployment remains elevated, 10 million to 12 million homes could enter the foreclosure process (see story).
"Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent," the MBA said in a letter to Treasury Secretary Tim Geithner.
The average laid-off worker in 2009 was unemployed for six to seven months, the group said, "a considerable time period for an unemployed individual to try to stay current on his or her debts."
The MBA’s "Bridge to HAMP" program would evaluate borrowers using a model that assumes they will find work within nine months of losing their job at 75 percent of their previous salary.
Borrowers would generally pay 31 percent of their household income during three forbearance periods of 90 days each, for up to nine months.
Borrowers will be reevaluated to make sure they continue to meet net present-value and loan-to-value thresholds, and would need nine months of unemployment benefits available to be eligible for all nine months of forbearance.
The MBA says the government could make the program available to the greatest number of borrowers by sharing some of the risk with lenders and providing loans to participating mortgage servicers to cover advances of principal, interest, taxes and insurance for the extended forbearance period.
The program "would need to be voluntary and flexible due to financial accounting considerations," the MBA said.
Ideally, a forbearance plan would not be considered a troubled debt restructuring, the MBA said, and the lenders could value the loans based on the value of expected cash flows rather than the fair value of the underlying collateral, the MBA said in its letter to Geithner.
The latter approach is being debated by the Office of the Comptroller of the Currency, the MBA said.
"Unless favorable accounting treatment is granted and appropriate lending facilities are offered, the program must be voluntary and flexible," the MBA said.
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