.forward files do not work with the default sendmail installation AND RedHat's single-user groups, if the home directory is set to a reasonable drwxrwxr-x. Sendmail complains: Mar 17 00:00:01 hobbes sendmail[30210]: JAA30209: forward /home/foo/.forward: Group writable directory I don't think it should be necessary to make the home directories drwxr-xr-x to make this work. Permission settings of 755 are illogical given RedHat's desire for single-user groups as the default.
home dirs are not created with 0775 by default and I think it is good to ship sendmail with this extra security check, so I'll not change anything for the default setup.