Magazine article Mortgage Banking

MBA Forbearance Plan Aims to Help Borrowers, Servicers, Investors and Taxpayers

Magazine article Mortgage Banking

MBA Forbearance Plan Aims to Help Borrowers, Servicers, Investors and Taxpayers

Article excerpt

More unemployed Americans are experiencing the longest interlude between jobs since government record-keeping began in 1948, according to MBA Chief Economist Jay Brinkmann, who says 41 percent of those currently jobless have been without work for more than six months.

This unfortunate precedent serves as a backdrop for an MBA initiative announced at the association's annual National Mortgage Servicing Conference in San Diego that would have servicers lower monthly mortgage payments for qualified, unemployed borrowers to no more than 31 percent debt-to-income (DTI). In addition, under the plan, U.S. Treasury funds would be provided to servicers to cover the borrower's mortgage, tax and insurance obligations.

Staged in three phases of 90 days each, the program would assist households that do not qualify for loan modifications under the government's HAMP program, but who would be reconsidered for it once this new, proposed forbearance ended or the affected borrower reenters the workforce. The MBA forbearance concept assumes that qualifying borrowers will be re-employed at 75 percent of their previous salary.

Acknowledging that "there are hundreds of smaller servicers who won't have the cash or capital to make pass-throughs over a prolonged period," MBA proposes they receive public money in the form of a low-interest loan that would have to be paid back, theoretically producing profits for the government, according to MBA.

In unveiling the plan last month, MBA President and Chief Executive Officer John Courson noted that many unemployed homeowners who had experienced a "precipitous drop in income can't qualify for most loan-modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job," he said, adding: "The vast majority of new distressed borrowers we are seeing involve the loss of income."

In an outline to Treasury Secretary Timothy Geithner, Courson said the new initiative would be "in the best interest of borrowers, servicers, investors and the taxpayers. Borrowers benefit because they get help that is more tailored to their specific situation, and many borrowers will qualify for a forbearance that might not qualify for a trial modification, thereby expanding the effectiveness of HAMP," explained Courson. "The taxpayers benefit because resources will be spent in the most efficient way by avoiding putting people with temporary problems into permanent solutions paid for in part by the government."

Weeks ago, in public discussion at another industry meeting, Seth Wheeler, a senior adviser at the Treasury Department, acknowledged the adverse impact of unemployment on the government's loan-modification efforts. "It is a challenge," Wheeler acknowledged. "If the borrower has nine months of unemployment insurance, it can be included as income in the [modification] calculation. Yet some borrowers still don't pass, so we're looking at additional measures" to help, he said, identifying one of those aids as "an NPV [net present value] model [in which] we can accommodate principal reductions or writedowns. We recognize that where the LTV is above 120 percent, it poses a financial hardship and an affordability problem," noted Wheeler, adding: "High negative equity is challenging, [so] we're at principal reductions in HAMP. …

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