No mortgage mods for many of the jobless

By Tami Luhby, senior writer


NEW YORK (CNNMoney.com) -- Unemployed homeowners cannot count jobless benefits as income when applying for mortgage modifications if they have loans backed by Fannie Mae. That could greatly limit their ability to get a long-term reduction in their monthly payments.

Because the jobless benefits can't be considered permanent income, the lender will instead evaluate troubled borrowers for forbearance plans of up to six months. The new guidelines, released Tuesday, will take effect Nov. 1.

"We don't want to set up borrowers to fail, said Amy Bonitatibus, Fannie Mae spokeswoman.

Fannie Mae's announcement broadens a ban already put in place from the Treasury Department. In July, the agency quit allowing unemployment insurance to be used as income when applying for the administration's signature Home Affordable Modification Program, known as HAMP. Previously, borrowers had been allowed to do so.

Now, the unemployed who apply for HAMP are evaluated for forbearance plans, which can reduce or suspend their payments for at least three months.

Fannie Mae (FNM, Fortune 500)'s new stance also prevents banks from using unemployment benefits in their own proprietary modification programs if the loan is backed by the mortgage finance company.

The unemployed account for most of the new delinquencies in the mortgage market, experts say. Many depended on using their jobless benefits to qualify them for modifications.

However, the growing focus on the sustainability of these modifications have raised questions about counting temporary benefits as an income source. Instead, the government and many banks have set up alternate programs for the jobless, such as forbearance.

Non-HAMP bank modifications are growing in importance as the government initiative loses steam. Nearly 449,000 people have received permanent modifications under HAMP through August, up from nearly 422,000 a month earlier, according to federal data released Wednesday.

Another 46,700 people fell out of the HAMP program in August, bringing the total to roughly 664,000. Some 26,600 entered the effort in the trial phase. Some 202,500 borrowers are in the trial period as loan servicers evaluate their ability to keep up with the lowered payments.

Of those who fall out of the program, some 44.5% of them receive other types of modifications from their servicers. But a growing number of them, 13.4%, wind up in foreclosure. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,959.44 154.64 0.87%
Nasdaq 4,781.42 16.04 0.34%
S&P 500 2,078.54 7.89 0.38%
Treasuries 2.16 -0.01 -0.64%
Data as of 8:04pm ET
Company Price Change % Change
Gilead Sciences Inc 92.90 -15.55 -14.34%
Bank of America Corp... 17.71 0.09 0.51%
Apple Inc 112.94 1.16 1.04%
General Electric Co 25.71 0.09 0.35%
Facebook Inc 81.45 1.57 1.97%
Data as of 4:00pm ET

Sections

Private equity titan CEO David Rubenstein drops some rhymes in a holiday message to investors. More

Sure you could spend more this holiday, but your better bet is to put the money you save in your 401(k). More

So, North Korea's Internet went down. What is it like anyway? There are PlayStations, XBoxes and a MacBook. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

Retired union workers could see their pensions cut under a controversial new law, but many say they're not sure how they'll make ends meet if big cuts go through. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.