A new Web-based tool can help workers who have lost their jobs demonstrate that their unemployment checks will be large enough and last long enough to allow them to qualify for a mortgage loan modification.

The Home Affordable Modification Program (HAMP), one of the Obama administration’s main foreclosure prevention initiatives, allows laid-off workers to obtain loan modifications — but only if loan servicers can determine that borrowers have at least nine months of unemployment benefits remaining.

In the past, unemployment insurance typically lasted no more than 26 weeks, or about 6.5 months. But because the recession has made it more difficult to find work, Congress has passed provisions that extend unemployment benefits to last as long as 79 weeks — about 20 months.

Whether workers are eligible for that much coverage depends on the level of unemployment in their state and their individual circumstances.

Further complicating the issue is that there are three different unemployment programs: the regular 26-week unemployment insurance program, an extended unemployment compensation (EUC) program of up to 33 weeks, and an extended benefit program (EB) of up to 20 weeks.

To help lenders, housing counselors and homeowners determine the amount and duration of unemployment coverage a troubled borrower is eligible to receive, the Department of Labor has launched an unemployment benefit estimation tool.

Using information from a letter that individuals applying for unemployment benefits receive from the state, the tool can calculate potential total weeks of unemployment insurance for all programs, along with the individual’s weekly benefit amount and the total potential amount to be paid over the life of their claim. …CONTINUED

The tool cannot be used to assess potential unemployment claims for workers eligible for benefits under the Trade Adjustment Assistance (TAA) program who are unemployed as a result of foreign trade. Lenders and others should ask individuals if they are eligible for these benefits, the Department of Labor said in a fact sheet explaining the tool.

Before the HAMP program, unemployment made it nearly impossible to qualify for a home loan modification, the Department of Labor said in a press release.

A recent report by a Congressional Oversight Panel created to oversee the $700 billion Troubled Asset Relief Program (TARP) warned that the HAMP program was too narrow in scope to address foreclosures caused by unemployment.

The HAMP program is projected to use $42.6 billion in TARP funding to support up to 2.6 million loan modifications. If unemployement remains elevated, 10 million to 12 million homes could enter the foreclosure process, the report said (see story).

The Hope Now Alliance, a coalition of loan servicers, counselors and investors, welcomed the new tool as evidence that the Department of Labor is taking "significant steps" to help unemployed homeowners.

"This is a highly useful tool for all parties, as it really streamlines the process for unemployed borrowers to a faster resolution," the group said.

***

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