During the Obama administration, the federal government created multiple home loan modification initiatives to help homeowners facing mortgage default and foreclosure. Fannie Mae and Freddie Mac are two federal government mortgage lenders that participated in these modification programs. Until 2017, delinquent and underwater borrowers with loans owned or guaranteed by these agencies were eligible for help through a streamlined modification program. These agencies continue to help delinquent homeowners stave off foreclosure with improved replacement initiatives.
When compared to standard loan modifications, the success or completion rate for streamlined modifications was 34 percent higher. These changes helped Fannie Mae and Freddie Mac to greatly decrease loan modification approval delays commonly caused by missing and mislaid paperwork. Eliminating the documentation requirements from the application process also decreased the amount of time it took distressed borrowers to bring their mortgages accounts current.
The Fannie Mae and Freddie Mac streamlined loan modification program was closed and new Flex Modification initiatives were created.
Streamlined Loan Modification Qualifications
The Federal Housing Finance Agency administered the streamlined modification programs. It only made its streamlined modification program available to borrowers with Fannie Mae and Freddie Mac home loans. Your loan qualified when either of these agencies owned or guaranteed your loan. Your eligibility kicked in when your mortgage loan was behind by at least 90 days.
Borrowers who qualified owed $250,000 or less on the mortgage principal balance on an owner-occupied home. For underwater mortgages, when your loan-to-value ratio was at least 115 percent, you were eligible.
Streamlined Modification Program Key Features
The main feature of this program was that it decreased or eliminated almost all of the paperwork required for similar existing federal government loan modification programs. Mortgage lenders gave highest priority to distressed borrowers who had failed to provide the documentation needed to apply for other modification programs. Eligible borrowers and lenders initiated a trial modification period of three months. The trial modification terms decreased the interest rate for the loan and reduced the borrower’s monthly payment.
If the borrower successfully completed the trial modification, the lender and borrower moved forward to a permanent modification agreement. A permanent modification generally also provided principal forbearance for some or all of the delinquent portion of the loan.
Flex Substitutions for Streamlined Loan Modification
In 2017, Fannie Mae and Freddie Mac combined their streamlined modification initiatives into the Freddie Mac Flex and Fannie Mae Flex Modification programs. The Flex Modification replacement programs have similar features. Their reduced paperwork requirements vary, depending on the delinquency status of your loan.
Current Flex Modification Requirements
The lender or the borrower can request this modification. Homeowners with a mortgage delinquency of 90 days or more do not need to submit financial information to apply. The targeted reduction in monthly payments is 20 percent less than the current payment.
If you are less than 90 days behind on your mortgage payment, you must submit financial documentation to apply for a Flex Modification. The lender’s modification terms must provide you with a payment of no more than 40 percent of your current income. It must decrease your current payment by a minimum of 20 percent.
Flex Loan Modification Considerations
Find out if you are eligible to participate in any government programs that help homeowners by contacting your lender first. The Flex Modification programs that Freddie Mac and Fannie Mae offer now have a minimal paperwork burden. Therefore, they usually result in a quick resolution of financial dilemmas that affect your mortgage payments. The company that you make payments to could be different from the actual owner or guarantor. Both agencies have tools on their websites to help you find out if they actually own or guarantee your loan.
The U.S. Treasury Department continuously monitors and evaluates the effectiveness and efficiency of programs designed to help homeowners avoid foreclosure. Many homeowners neglect to inform their lender of unforeseen financial problems. Conducting a realistic assessment of your ability to make your mortgage payments is better than doing nothing.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.