Break for Unemployed Borrowers

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MORTGAGE EXPERT
1 · 11 · 09

Institutions that acquire mortgages from failed banks and receive government subsidies on losses tied to those assets are being asked to delay foreclosures on loans to out-of-work borrowers.

As an enticement to potential investors, the Federal Deposit Insurance Corporation regularly agrees to share in losses on assets its unloads after taking over failed banks.

In a statement today, the agency said it is encouraging the acquiring institutions that benefit from loss-sharing agreements to consider temporarily reducing mortgage payments for borrowers who are either unemployed or underemployed. The forebearance would be in effect for at least six months while the borrower becomes re-employed.

The FDIC’s move is an attempt to provide additional workout alternatives through forbearance agreements and avoid an unnecessary foreclosures.

“This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less,” FDIC Chairman Sheila C. Bair said in the statement. “This is a win-win for the borrower, who can remain in his or her home while looking for a new job, and the acquiring institution, which continues to receive payments on the loan.”

The forebearance amount is not covered under the loss-share agreements with the FDIC.

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