FHA to offer 12-month grace period to unemployed borrowers

The Federal Housing Administration says the extended grace period for out-of-work borrowers applies only to FHA-backed loans.

Some unemployed Californians facing foreclosure may be able to delay or avoid losing their home. Starting August 1, the FHA will allow qualified homeowners with backed mortgages to stop making monthly payments for 12 months before the foreclosure process begins. Banks servicing the loans would need to approve of the deal.

Gugin said allowing some unemployed homeowners to go without making a monthly payment for twelve months will help some families. About a fifth of the home loan market in California are mortgages backed by the FHA, Gugin estimates.

"I don't think we're going to see a point where we go from 25 (thousand foreclosures) back to five in a year. I think it's going to be a gradual decline and perhaps this is the year where we see the gradual decline because we haven't yet," Gugin said.

"There's still the middle person in the servicer that has to implement the program, and that can still remain a challenge regardless of what the policy (is), Gugin said. "It gives us another option, but it's not a silver bullet."

The extra grace period also applies to homeowners in the government's Making Home Affordable modification program.