The FDIC has encouraged the banks it takes over every Friday to consider temporarily lowering mortgage payments for those who are who are unemployed or underemployed.
“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures. This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less,” said FDIC Chairman Sheila C. Bair.
“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. Ultimately, by reducing losses under our loss-share agreements, this approach helps reduce losses to the FDIC as well.”
The recommendation to its loss-share partners should only apply when unemployment/underemployment is the primary reason for the mortgage default, which we all know isn’t always the cause.
The FDIC said the temporary forbearance plan should go into effect for at least six months and allow for reasonable living expenses after the payment of mortgage-related expenses.
However, the reduction in mortgage payments during a temporary forbearance period are not considered covered losses under the loss-share agreement with the FDIC, though losses from subsequent loan modifications are; losses incurred in subsequent foreclosures or short sales also are covered losses.
Those who acquire failed insured institutions that agree to a loss-share arrangement with the FDIC must abide by the FDIC Mortgage Loan Modification program for assets purchased from the failed institution.