Thanks to “adjustments” to Federal Housing Administration (FHA) requirements, loan servicers dealing with FHA loans must extend the forbearance period for unemployed homeowners to 12 months now[1]. Furthermore, servicers who participate in the Making Home Affordable (MHA) program must extend minimum forbearance period to 12 months “wherever possible under regulator and investor guidelines.” HUD secretary Shaun Donovan explained and supported the changes, saying that “the current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers…[as] 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.”

The changes to the programs must be in place by August 1, 2011[2]. Previously, MHA had been limited to borrowers who were unemployed and three months or less behind on mortgage payments. These changes will extend the program to those who are “more seriously delinquent.” The changes to the forbearance period will enable qualified homeowners to go a full 12 months without making a mortgage payment before foreclosure begins.

While this may seem like a terrible idea on the surface because it appears to prolong housing market agony and put lenders in the red, it may only be formalizing something that many lenders are already doing as they delay the foreclosure process. Do you think that this forbearance extension is a good thing, ultimately, for the housing market? Is it the government’s place to say how long a lender must wait to foreclose?

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[1] http://nationalmortgageprofessional.com/news25787/fha-extends-forbearance-terms-unemployed

[2] http://www.pe.com/business/realestate/stories/PE_Biz_D_foreclose08.2c451fa.html