For a while at least, borrowers attempting to modify their mortgages under the Home Affordable Modification Program (HAMP) were able to use their unemployment benefits to show enough income to qualify.  Fannie Mae has reconsidered this approach and unemployment benefits will no longer be counted as income.

Fannie Mae stated in a recent Lender Letter that "when a borrower is unemployed, a HAMP trial period plan or permanent modification may not be appropriate, and in some cases, the borrower may not have the ability to make the required payments."  This will make it more difficult for borrowers to save their home while they are unemployed, but Fannie Mae may see this as a way to curb re-default on final modifications.

Unemployed borrowers, or those who become unemployed during a HAMP trial period, may qualify for forbearance.  The minimum forbearance period is the lesser of six months or upon notification that the borrower has become re-employed.  The servicer is responsible for tracking borrowers' employment status.

During a forbearance period, payments may be required.  However, the payment required must be less than the borrowers' regular payment.  The forbearance may be canceled, and the borrower will not be eligible for HAMP consideration, if these payments are not made on or before the last day of the month in which it is due.  Exceptions for late payments can be made and the servicer should use good business judgment in determining whether forbearance payments were received in a timely manner or if mitigating circumstances caused the payment to be late.

Late fees cannot be charged while a borrower is in a forbearance plan and all late fees must be waived if a borrower is finally offered a permanent HAMP modification.

Borrowers will be evaluated for HAMP at the earlier of re-employment or 30 calendar days prior to the expiration of the forbearance plan.  Borrowers who are not offered forbearance will be considered for HAMP, although unemployment benefits and any other temporary sources of income related to unemployment (such as severance) will be excluded from their income for qualification determination purposes.

If a borrower is denied forbearance, and/or considered ineligible for HAMP, they must be notified in writing and informed of other options, such as short sale or deed-in-lieu.  The notice must also identify the steps the borrower must take in order to be considered for those options.