Jobless homeowners could get a little break from the bill collectors come February, after Freddie Mac announced Friday it's giving mortgage servicers a longer leash when it comes to working with unemployed borrowers.
Unemployed borrowers could be eligible for up to a year of forbearance on their mortgages—welcome news for the 5.6 million long-term unemployed Americans who've struggled to find work in the slow economy.
"These expanded forbearance periods will provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new employment and resolve their delinquencies," Tracy Mooney, senior vice president of single-family servicing and REO at Freddie Mac, said in a release. "We believe this will put more families back on track to successful long-term homeownership."
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Prior to the announcement, Freddie Mac allowed mortgage servicers to give borrowers up to three months of forbearance or six months of reduced payments without approval from the government-sponsored enterprise. Now, servicers can go ahead with six months of forbearance immediately and Freddie Mac can approve an additional six months down the road. The new rules go into effect Feb. 1.
The move from Freddie Mac comes after the Federal Reserve delivered a white paper to Congress Wednesday outlining the hurdles the housing market faces going into 2012, one of which involved creating a safety net for unemployed Americans who have come upon rough times but are otherwise responsible borrowers.
Helping out borrowers who are seriously delinquent—4 million to 5 million homeowners, according to some estimates—could keep them from going into foreclosure and adding more homes to the swollen housing inventory, experts say.
"To stabilize the housing market, we also need to weaken the link between unemployment and new foreclosures," New York Fed President and CEO William Dudley said in a speech Friday.
While he acknowledged that some support for unemployed borrowers has come through the Hardest Hit program, he says more can be done. "I favor a broad program to provide bridge financing for all qualified borrowers with demonstrated ability to service their debts who become unemployed involuntarily," he said.
Foreclosures remain a huge dead weight for the economy, and providing some relief and bridge financing for at-risk borrowers could mean the difference between a stabilizing housing market and one that continues to languish.