Homeowners who lose their jobs will be able to skip payments on loans backed by Freddie Mac for up to a full year under a new policy taking effect Feb. 1 at the mortgage finance giant.
The change, doubling the forbearance extended to the unemployed, squares Freddie Mac's policies with those that its sister company, Fannie Mae, adopted in September 2010. The two firms, operating under government conservatorship since nearly melting down three years ago, own or guarantee more than half of all U.S. mortgages.
The other pillar propping up the mortgage market, the Federal Housing Administration, also began providing a full year's forbearance as of last summer on the low-down-payment loans that it backs.
Freddie Mac previously had allowed banks providing customer service on its loans to extend three months of forbearance themselves when borrowers lost jobs, with another three months possible with approval from Freddie, for a total of six months.
Starting Feb. 1, servicers can now unilaterally allow borrowers to skip payments for six months, and add on another six months with Freddie's approval. The missed payments would be added on the loan balance unless the borrowers separately obtain a loan modification waiving that measure.
"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," Tracy Mooney, a Freddie Mac senior vice president, said in announcing the change Friday.
"We believe this will put more families back on track to successful long-term homeownership."
The Federal Housing Finance Agency, which regulates Fannie and Freddie, pushed for the two home finance Goliaths to adopt the same standards for forbearance.
Advocacy groups have welcomed longer forbearance periods, but also have urged Fannie and Freddie to write down the principal of loans in some cases for distressed borrowers. That is something the FHFA so far has not permitted, despite arguments that write-downs can reduce the risk of default.
The advocates of principal write-downs got a powerful ally Friday — William Dudley, president of the Federal Reserve Bank of New York.
"Investment firms that purchase delinquent mortgages routinely reduce principal in order to maximize value on these loans," Dudley told the New Jersey Bankers Assn. during a speech. "It would make sense for Fannie and Freddie to do this as well in order to minimize loss of value on the delinquent loans they guarantee."
Dudley said "underwater" borrowers should not have to go delinquent to be considered for a reduction. He said it would be better to create program that would reward borrowers with principal reductions if they continue to make the mortgage payments on time.
"Such a program would strengthen the incentives for mortgage holders who are underwater to continue to stay current on their loans, and reduce the likely number of defaults and [foreclosure] sales," he said.
FHFA officials have said principal reductions could threaten their efforts to preserve the assets of Fannie and Freddie, whose bailouts have cost taxpayers about $150 billion so far.
Borrowers can determine if their loans are backed by Fannie and Freddie by going to the companies' websites, http://www.fanniemae.com and http://www.freddiemac.com.
Spokesmen for Fannie Mae and Freddie Mac said distressed borrowers who don't qualify for unemployment forbearance should ask about loan-modification programs.
Anyone having trouble making a mortgage payments should call their loan servicer — the company that sends and collects bills — to talk over their options, the spokesmen said.