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2010-11-25 05:36:23

Unemployed Homeowners No Longer Eligible for Some Mods

Well, it shouldn’t really come as much of a surprise for millions of people who follow the housing industry, or current events for that matter, but the foreclosure rate continues to climb in the United States, despite all of the efforts of the HAMP stimulus project and other efforts set forth by the federal government. Residential foreclosures, on a month-to-month scale, have continued to climb steadily throughout last year and into this year, with July 2010 numbers closing in on 12% foreclosure rates.

New regulations limit modifications for unemployed workers

When the government’s HAMP program was unveiled, it was advertised as the savior of the housing crisis, a plan that would keep millions of people in their homes and heading off a dire situation throughout the housing market. The cost to the average taxpayer has been in the hundreds of billions of dollars and while it seems as though a limited number of people have been helped by it, especially through home loan modifications, that assistance could be running dry.

Not for a lack of funds, mind you, but because new regulations are being set in place for the unemployed. Fannie Mae backed mortgages are no longer eligible to use unemployment benefits as a source of income, as had been accepted in the past. During the first year and more of the HAMP program, people who had lost their jobs were allowed to use their unemployment benefits as counting toward their income.

Yet unemployment benefits are not permanent and are now no longer accepted when applying for a home loan modification.

Common sense at work

When people lose their jobs, it is a frightening time, especially when they have a mortgage to keep up with. Coupled with the massive drop in real estate values across the country and the adjusting interest rates that befell millions of homeowners, it would seem like a logical step to try and help these people out in any way that you could. Loan modifications were the silver bullet from the government.

But even on the surface, accepting unemployment benefits to count as income when refinancing or modifying a loan seems to be fraught with peril. Perhaps few people could foresee the unemployment crisis extend as long as it has and that millions of people would exhaust the unemployment benefits, even when they were extended. Yet how many homeowners who were granted loan modifications based on these factors managed to find work?

How many tried? These are questions for another time and another discussion. They are, however, legitimate at their core. When an individual is falling behind on their mortgage payments because he or she lost their job, then the money that the government is spending to help them modify their loan, guaranteeing lenders money in case of default, or picking up the tab for mortgage values that dropped significantly below the original loan’s value, is money that is acting only as a mild bandage.

It’s hope that the person receiving the modification will manage to find work and keep up with their current restructured loan terms. It seems that with the new regulations in place, that the hope didn’t live up to its expectations, which may be (and likely is) contributing to the continuous rise in foreclosure rates from month to month.

Private banks are doing more to help homeowners than the government

For all of the talk about greedy banks and how the government is looking out for the innocent citizen victim, it is strikingly amazing to learn that there are more privately backed loan modifications during the past two years than there were modifications backed by the government. Banks are in the business of making money. The government is not.

When banks are facing a foreclosure crisis, it stands to reason that they would be more willing to find common ground with their clients and work to modify the terms of the loan to avoid foreclosure. For most lenders, it’s a win-win situation, as opposed to a lose-lose.

It will be interesting to see what lies ahead for the housing industry now that unemployment benefits will no longer count toward modification.

David Reinholtz is a professional Mortgage  expert in Real Estate Industry.  David is also  a sales and marketing expert and trains  professionals in every career field.  David has  personally trained tens of  thousands of loan  officers, mortgage brokers, real estate agents  and individuals through The Close More University  Seminar Series, Classes,  Correspondence and On Line Learning, and  countless private engagements and training events  throughout the country.

David is the Founder and CEO of, an approved education  provider for The Conference of State Bank  Supervisors and The National Mortgage Licensing  Systems' (NMLS) required pre-licensing education  and continuing education.

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