New adjustments to the Federal Housing Administration home loans program will help homeowners who have lost their jobs keep their homes as they search for new work, the Obama administration announced this week.



The Federal Housing Administration (FHA) will extend the forbearance period for unemployed homeowners to 12 months. In addition, it will require lenders who have participated in the Making Home Affordable Program (MHA) to do so as well.



Prior to the change, the minimum forbearance period stood at four months.



According to Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, who oversees the FHA, similar loan modification programs administered by his department have helped more than 900,000 families keep their homes since the Obama administration took over in 2009.



The FHA is a self-financed federal program that provides mortgage insurance to homeowners who borrow from federally approved lenders to reduce the risk of loan defaults. The program encourages homeownership for working families by protecting lenders and reducing the amount of cash required at the close of the loan, according to the HUD website.



Some 34 million mortgages have been assisted through FHA programs since it was created as part of the New Deal in 1934.



The MHA program helps unemployed homeowners temporarily reduce their payments and renegotiate their interest rates in order to keep their homes while they look for work in period where home values have sharply declined.



Since its implementation in April 2009, more than 700,000 homeowners have modified their loans directly through MHA, Donovan told reporters on a conference call June 7.



Since April 2009, 5 million homeowners were able to restructure their home loans, more than twice the number of foreclosures in that time, he added. While foreclosures are down significantly, more work needs to be done to help families stay in their homes.



"The biggest driver of foreclosure today remains unemployment," Donovan said. "That's why we've made supporting unemployed borrowers at risk of losing their homes a top priority."



“Today, 60 percent of the unemployed have been out of work for more than three months and 45 percent have been out of work for more than six," he added. "Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home.”



“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” Donovan added.



About 3,500 families a month go into delinquency as a result of unemployment problems. Most will be eligible for some sort of loan modification program as a result of these rules changes.



Changes to FHA forbearance rules should pressure the lending industry as whole to provide similar help to struggling homeowners even if they do not have FHA-backed mortgages, Donovan said.



The influence FHA has on the broader market results from the large proportion of loans it backs relative to the entire market, Donovan said. FHA-backed loans represent nearly a quarter of new home loans and about 10 percent of all existing mortgages. Lenders have a built-in interest in following FHA guidelines. Broadening the FHA's unemployment program should "push the broader market to extend their unemployment and forbearance programs."



"It's not something we can direct them to do, but we certainly think that the announcement today [July 7] can push them in that direction and reach a broader set of homeowners who are at risk than we can reach alone," he noted.



"By reducing the number of Americans who face default, we not only reduce the foreclosures we also reduce the stress they cause communities and to the national housing market," Donovan explained.

Homeowners should visit the FHA website for more information about these programs.

[Update] In a statement released today, AFL-CIO President Richard Trumka welcomed the announcement on forbearance saying, "America's working families applaud President Obama for helping homeowners who have lost their jobs by providing up to 12 months of forbearance to prevent foreclosure."

He added, "The foreclosure crisis and the jobs crisis are two sides of the same coin."

Trumka said more needs to be done to eliminate unemployment and to punish the bankers who caused the housing crisis that spurred on the recession. He also railed against Republican Party plans to cut social spending, even as millions of workers struggle with job loss, paying their mortgages, or simply making ends meet.

"We cannot cut our way to economic growth. We must protect the economic safety net for working families and invest in rebuilding America's infrastructure. We will continue to hold banks accountable to do more to mitigate the foreclosure crisis," he emphasized.

Photo by Joe Loong/cc by 2.0/Flickr