No mortgage mods for many of the jobless

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.