In an effort to assist unemployed homeowners, Freddie Mac has doubled the length of time that an unemployed borrower's mortgage payments can be reduced or suspended, according to a statement released Friday afternoon by the company.
Freddie Mac has traditionally allowed its servicers -- the mortgage companies hired to handle the day-to-day management of the loans -- to offer reduced or suspended payments to help unemployed borrowers weather financial hardships. But there used to be more red tape.
Previously, anytime a servicer wanted to "forbear" payments, that is suspend or reduce them, beyond three months, the servicer had to ask Freddie Mac for permission.
Now the servicer has the authority to offer such an arrangement without Freddie Mac's approval for as long a period as six months; plus the extension could be up to 12 months (instead of the prior maximum of six) with the agency's approval.
"These expanded forbearance periods will provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new employment and resolve their delinquencies," said Tracy Mooney, a senior vice president at Freddie Mac. Nearly 10 percent of the company's delinquent loans are in some way related to borrower unemployment issues, according to the company.
Fannie Mae, the other government-owned mortgage giant, said that it intends to implement a similar program, according to Andrew Wilson, a company spokesman.
Freddie's announcement comes just as America's unemployment numbers are starting to improve. Last month, the U.S. economy added 200,000 new jobs, according to the Bureau of Labor Statistics. Additionally, the unemployment rate dropped to 8.5 percent.
"This is a positive development for the large number of people who are unemployed and struggling in the foreclosure process," said Kevin Stein, associate director of the California Reinvestment Coalition, a consumer advocacy organization.
"At the same time, if Freddie really wants to make a difference in the foreclosure crisis, they should offer loan modifications with principal reductions," Stein said. "Or, they should offer yearlong leases for tenants living in foreclosed properties, which is something Fannie Mae happens to be doing and Freddie is not and which would make a big difference in this market."