Announced in September a forbearance proposal by the FDIC only applies to 53 institutions that have relied on the FDIC’s insurance fund.  Reason being, unemployment is still high and they want to avoid having another wave of foreclosures in 2010.   I have been predicting all along that 2010 is going to be as bad as  2009 in housing.

Translated into real terms to people who can not pay their mortgage….

If your first mortgage is with Wells Fargo, Bank of America, Citigroup and JP Morgan Chase then you will not get the FDIC recommendation for relief up to six months and sometimes longer as the lenders work on long term loan modifications.   The fab “4” claim they already have in place their own forbearance and modification processes for people in this position.  They have not relied on FDIC fundings so if your mortgage is  with one of the Fab 4 don’t even talk to them about this new program. 

Under the FDIC plan the lender would reduce the loan payment to an affordable level for that borrower who can not currently pay their mortgage as a result of a job loss or salary reduction. The new payments would be low enough to allow for “reasonable living expenses” in addition to their mortgage. 

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Let’s hope this plan will actually happen.  As of now banks are not modifying mortgages  or forbearing to a level that is affordable for people with pay cuts.   The present forbearance agreements that they propose to homeowners  before a  more permanent loan modification  are so ridiculously high that people end up breaking their forbearance agreement.  A real loan modification is a permanent change in the mortgage plan and that is what is just not  happening in the industry.  A forbearance agreement is a quick fix in payments that are usually adjusted for 6 months to a year.   They are 99% of the time double your present mortgage payment because banks want you to play catch up since you have been behind.  Well, if a person can’t afford $1000 a month how can they afford $1700 a month for 6 months?  When I am at kitchen tables with sellers listening to bank proposals that they have received I just shake my head. 

 I’ll know inside of three months if this new effort is actually happening.  Keep in mind Obama during his campaign said that he wanted to see banks modifying loans or he was going to allow bankruptcy judges to cramdown or modify mortgages on  primary residences.  Currently the law states Bankruptcy judges can rewrite  (cramdown) mortgages on 2nd homes, autos and boats.  Why not the primary home?  Well, banks were not and still not modifying loans and Obama vanished into the woodwork when Congress voted on that bill this year. 

Stay tuned.