If you’re unemployed and in danger of losing your home, you may find some relief through a new forbearance program announced earlier this month by Fannie Mae and Freddie Mac. Under the new forbearance program, unemployed borrowers may be allowed to defer all or a portion of their monthly mortgage payment for up to 12 months. Any foreclosure proceedings are suspended during the forbearance period.

The unemployment forbearance program applies only to loans owned by Fannie Mae or Freddie Mac, which make up about half of all mortgages. Other eligibility requirements, according to Fannie Mae, include:

  • The borrower must be suffering a financial hardship due to unemployment. (Unemployment means the borrower is not working at all, although a co-borrower may be employed.)
  • The borrower must be delinquent or on the brink of default.
  • The property in question must be the borrower’s primary residence.

Freddie Mac’s program goes into effect on February 1, 2012, while Fannie Mae’s is effective a month later. Some lenders may choose to comply with the new program rules sooner.

The new program matches recent changes to the Federal Housing Administration’s forbearance program, as well as similar changes to Making Home Affordable’s Home Affordable Unemployment Program. (Additional information on the FHA forbearance program can be found here. For more on the Home Affordable Unemployment Program, visit the Making Home Affordable website at www.makinghomeaffordable.gov and click “Explore Available Programs.”)

Keep in mind that there may be potential drawbacks to participating in any forbearance program. Mortgage payments that have been deferred are typically added back into principal, increasing the total amount you will need to repay once the forbearance period ends. Some lenders will report your mortgage as delinquent during a forbearance period. If you’re considering forbearance, ask your lender what their policy is. Read your forbearance agreement carefully before signing, and consider consulting a free HUD-certified housing counselor to go over any terms you don’t understand. (HUD-approved housing counselors can be found by visiting www.995hope.org or calling 888-995-HOPE.)