Helping Neighbors In Need

Forbearance is an alternative to foreclosure commonly considered for temporary financial situations such as short periods of unemployment or poor health. In the simplest of terms, mortgage forbearance enables you to temporarily stop making, or significantly reduce, mortgage payments. Interest continues to accumulate on the mortgage during the forbearance period and is added to the remaining balance of the loan. You are generally asked to sign a forbearance agreement that states when the lender will require you to pay the amount you owe. Once the forbearance period comes to an end, you are once again obliged to make full payments on your home loan.

While mortgage forbearance may only serve as temporary fix, it does buy you some time to overcome a difficult financial situation and allows you to keep your home.

The Federal Deposit Insurance Corporation (FDIC) recently recommended a plan to offer forbearance on certain loans that it insures. An article outlining the plan follows:

The New York Times

Published: October 2, 2009

A Plan for Forbearance

By BOB TEDESCHI

The Federal Deposit Insurance Corporation, which protects consumer deposits when banks fail, recently recommended that lenders provide certain borrowers with a temporary respite from mortgage payments, or forbearance. That relief would last up to six months, and sometimes longer, as the lenders work on long-term loan modifications.

Under the agency’s plan, lenders would reduce loan payments to “affordable levels” for those borrowers who defaulted on their mortgages as a result of job losses or salary reductions. The new payments, the agency said, would be low enough to allow for “reasonable living expenses” in addition to the mortgage.

The plan, announced in September, applies only to the 53 financial institutions that relied on the F.D.I.C.’s insurance fund while acquiring failed banks. It does not include the four major mortgage lenders: Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase. These banks already have unemployment forbearance programs, though they differ from the F.D.I.C. plan.

The complete article can be found at http://www.nytimes.com/2009/10/04/realestate/04mort.html