The Federal Housing Finance Agency (FHFA)—the conservator of government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac—has announced a new housing program designed to help financially-strapped homeowners get their mortgage payments up-to-date and save a lot of money in the process.
The Streamlined Modification Initiative is geared toward homeowners who are 90 days or more delinquent in their mortgage payments. Qualified borrowers will soon be receiving letters from their respective lenders.
Eligibility requirements for the program
The FHFA has not released a number for the number of delinquent borrowers eligible for the scheme. However, last week the Mortgage Bankers Association (MBA) reports that 1.1 million homeowners had home loans with mortgage payments in arrears at least three months.-- not all of these borrowers held mortgages insured by Fannie Mae and Freddie Mac.
You do not have to take the initial step of contacting their lenders to learn if you are eligible for the program. The Streamlined Modification Initiative requires your lender to send you a letter if you meet all of the following conditions:
- Your home loan must be guaranteed by Fannie Mae or Freddie Mac
- Your mortgage payment is three months (90 days) to 24 months (720 days) delinquent
- Your first lien must be at least 12 years old
- You have a loan to value ratio of 80 percent or higher
Homeowners with a loan that has been modified more than twice or has a "strategic default"—meaning the property owner walked away from the home/mortgage payment—cannot qualify for the Streamlined Modification Initiative. Owners of second homes and investment properties are eligible to participate in the program
What to expect
Starting on July 1, mortgage servicers peruse their databases to identify homeowners who qualify to participate in the program. Here is how the process works:
- The lender sends out a letter that outline the terms of the loan modification
- The letter must include the amount of the new monthly payment required for a Streamlined Modification.
- The borrower submits the required payment to begin a trial modification period
The actual modification consist of the lender extending the term of the loan— for example, 30-years to 40-years, and lowering the mortgage interest rate. The borrower must successfully complete trial modification period—three months—to obtain a permanent loan modification.
Failure to make the three monthly payments on time during the trial period nullifies any chance for a permanent loan modification under the Streamlined Modification Initiative—although borrowers may have other options to avoid foreclosure.
If you have a high interest rate mortgage and have been unable to refinance to take advantage of record low mortgage rates—this is a great opportunity to lower your monthly mortgage payment.
For example, a borrower with a 30-year, fixed-rate $200,000 mortgage with a 5.5 percent interest rate can lower their monthly payment from $1,135 to $835—a savings of $300 a month— by having the loan modified to a 40-year term with a 4 percent mortgage interest rate.
Less documentation requires
The attractiveness of this program is that struggling home owners who meet the above criteria will not have to document a financial hardship or documents to verify their income. The program is not related to the federally-sponsored Home Affordable Modification Program (HAMP) or private loan modification programs.
Reducing the burden of documentation for loan modification will make it easier for more homeowners to save their homes from foreclosure, says a FHFA spokesperson.
Nonetheless, the FHFA recommend that borrowers submit documentation of hardship, income, and financial assets because it’s possible they may qualify for other loan modification alternatives such as HAMP.
Qualifying for HAMP may entitle the borrower to lower monthly payment. In addition, HAMP have other incentives that many homeowners may qualify to receive, such as a principal reduction.
The Streamlined Modification Initiative is scheduled to end on December 31, 2015. Borrowers can Apply for Streamlined Modification Initiative and see if they qualify.