A new federal program that lets the unemployed defer all or part of their mortgage payments for 12 months or more will provide a real safety net for families that need a temporary bridge to save their homes. But the program is too limited, applying only to loans backed by the Federal Housing Administration. Foreclosures today are more likely due to a homeowner's unemployment than having been trapped in a subprime loan. A large-scale program that grants the jobless a decent reprieve from mortgage payments is needed.
Turning around the housing market is still a major item on President Barack Obama's to-do list. The continued decline in housing prices coupled with record numbers of homeowners in trouble puts a serious drag on the economy, particularly in Florida. As much as the administration has tried to address the issue with a variety of programs — from direct mortgage assistance to rewarding banks and mortgage servicers for modifying loans — its initiatives, as the president acknowledged last week, have had little effect on stabilizing the housing market.
Under the new program, mortgage servicers who have loans that are guaranteed by the FHA must offer to eligible unemployed homeowners a year or more in which they can postpone all or part of their mortgage payment. If borrowers pay half their mortgage, for example, they can enjoy forbearance for up to 24 months. If they pay none, they can receive up to 12 months. The full mortgage would still be owed with some interest accruing, but the temporary postponement gives people who are unemployed a reasonable time to find a job.
Unemployed Americans are finding the job market particularly impenetrable. The country is experiencing the longest average length of unemployment since those figures were first kept in 1948. The jobless have been out of work on average for 39.7 weeks, or more than nine months, and the national unemployment rate rose in June to 9.2 percent.
Because only about 14 percent of mortgages are backed by the FHA, the program's reach will be limited. The administration predicts it will assist only tens of thousands of people. What is needed is a program that helps hundreds of thousands or millions of unemployed Americans struggling to keep their homes. In addition to the obvious individual benefits, preventing so many additional foreclosures would help stabilize the housing market. Freddie Mac and Fannie Mae own or guarantee roughly half of all the nation's mortgages. They should be enlisted, particularly since taxpayers invested $163 billion to keep them afloat.
The administration says it hopes that the entire lending industry will follow its lead. But the nation's big banks have made it clear through their anemic loan modification efforts that they will not help struggling homeowners unless it serves their interests or they are forced to by government. Some more force is needed.