Plan to Craft Government Foreclosures Scheme for Unemployed

Posted on July 1st, 2009 in Foreclosure Crisis

The unemployment problem has been hindering the progress of the government repo foreclosures program, according to housing analysts, economists and foreclosure counselors.

The analysts said that the Obama administration’s Making Home Affordable program was crafted to address the issue of subprime lending, which was considered the main cause of the first flood of foreclosure auctions.

But most borrowers applying to get help under the government foreclosures program are being rejected because their reduced monthly income do not qualify them for loan modification schemes.

Michael van Zalingen, head of homeownership services at the nonprofit group Neighborhood Housing Services of Chicago, said that the government foreclosures program was designed around the subprime lending model and not the unemployment model.

Van Zalingen said that while the government foreclosures program gives cash incentives to lenders to lower monthly payments to 31 percent of borrowers’ monthly income, around 45 percent of over 900 borrowers his organization had counseled in two recent events do not have adequate income to make their monthly loan payments. Even if the borrowers’ mortgage rates were reduced to 2 percent and their loans were extended to longer terms, the reduced monthly payments would still get unpaid because the borrowers do not have the income to make the payments.

Van Zalingen also said that around 27 percent of homeowners who called the Hope Now hotline from April to June were unemployed, an increase from the 9.7 percent of callers in last year’s second quarter.

Federal officials running the government foreclosures program said they are currently evaluating the program and are considering ways to address the unemployment problem.

One of the schemes being considered is a forbearance scheme that would enable homeowners to defer monthly loan payments while they find jobs.

Federal officials also said they are considering giving additional incentives to lenders to work out forbearance schemes for unemployed borrowers who have good chances of re-employment.

Other suggestions being considered are provision of short-term loans for homeowners who have been laid off, provision of funds for missed monthly payments for a limited period of time and provision of some leeway to borrowers who are getting re-employed soon.

However, despite the unemployment problem, according to Obama administration officials, the government foreclosures program has been getting positive results. They said over 200,000 mortgage loans have been modified and that 20 mortgage servicers have been increasing their efforts in working out affordable payment schemes for borrowers.

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