Nearly half of unemployed Americans have been out of work for more than 6 months. As though going that long without an income isnt hard enough, unemployed homeowners really have it rough, as banks can foreclose on unpaid mortgages after just 4 months. In response, the Federal Housing Administration announced yesterday a new forbearance extension program.

Instead of the current 4-month cut-off, unemployed homeowners may not be foreclosed on for a full year. The operative word here is unemployed. This program does not apply to employed homeowners who are simply not making their mortgage payments.

However, as explained by the U.S. Department of Housing and Urban Development, even unemployed homeowners may not qualify for the extension if the borrower is:

• Delinquent with 12 months worth of principle, interest, taxes and insurance installments
• Unable to make a partial payment
• Already qualified for a standard foreclosure assistance option

If denied, the mortgage servicer is required by law to provide the borrower with the relevant information that informed the decision. From that point, the borrower then has 7 days to respond with additional information that may improve the chances for qualification.

That said, the new forbearance extension program is evidently going to be free from the upfront hurdles that have made it difficult for unemployed homeowners to qualify for extensions in the past.

If approved, the terms of the forbearance will continue through the entire 12-month time period, unless the borrower:

• Abandons the property
• Decides to stop looking for employment and/or will not honor the terms of the agreement
• Allows the forbearance payments to go 60 days past due and unpaid
• Finds a job and the loan is reinstated

For borrowers who complete the 12-month program, but are still having trouble making payments, mortgage services are also now required by law to consider other forbearance programs for which these borrowers may qualify.

The new 12-month forbearance extension program is set to go into effect August 1, 2011, though mortgage services have 60 days from then to comply. And this program is a temporary one. Assuming the law goes into effect as planned, the program will expire 2 years later, on August 1, 2013.

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