A new loan modification program aimed at making the process simpler and more accessible.
Ever since the financial crisis of ’07-’08, mortgage companies have been making an increased effort to provide affordable, sustainable options to customers, helping them to avoid stressful situations like falling behind on monthly payments or losing their homes to foreclosure. One of the most important ways mortgage companies provide relief is by offering their current borrowers the chance to apply for a loan modification.
The Loan Process
When a loan is first issued, the mortgage company determines how much time the borrower will have to pay it back, how much interest they will charge per month, and what percentage of the borrower’s monthly income they expect to be put towards the monthly mortgage payment. Loan modification is a process aimed at adjusting these original terms so that they better meet the financial needs of both borrower and lender. Two of the biggest mortgage companies in the country, the government-sponsored Fannie Mae and Freddie Mac, have recently teamed up to offer Flex, a new updated loan modification program, in an attempt to make the process simpler and more accessible.
Flex is similar to other loan modification options offered by Fannie and Freddie, like their Standard and Streamlined programs. It also resembles the Home Affordable Modification Program (HAMP), a modification plan created by the federal government in 2009, that many mortgage companies adopted as a part of their framework. With HAMP’s expiration in December of 2016, and the gradual phasing out of the Standard and Streamlined plans by October 1, 2017, Flex will soon become the primary option for Fannie and Freddie borrowers looking to modify their loans.
Who is eligible for loan modification?
The program seeks to help two main classes of borrowers:
- Those who are at least 60 days behind in making their mortgage payments.
- Those who are more than 90 days behind, and facing possible foreclosure.
A deeper look at loan modification
In order to better understand Flex, it is helpful to consider the application process, eligibility requirements, benefits, and limitations of the program in terms of these two categories; Borrowers who are at least 60 days delinquent, and borrowers who are 90 days or more delinquent.
Borrowers at least 60 days delinquent process
Should contact their Fannie or Freddie loan servicer, to ask if Flex Modifications are being offered, and if so will most likely qualify for a Flex Modification.
To begin the process:
- Borrowers must submit all of the paperwork for a Flex loan modification application (this includes the Fannie or Freddie Request for Mortgage Assistance form, and all of its supplemental documents.)
- If approved, borrowers will receive a 20 percent reduction in monthly mortgage payments
- Be expected to put about 40% of their monthly income towards monthly mortgage payments
Borrowers who are 90 days or more delinquent
- Should be contacted by their Fannie or Freddie loan servicer with offers for a Flex Modification.
- Will not have to submit any paperwork for the Flex modification application.
- Will be automatically approved for a 20 percent reduction in monthly mortgage payments.
- Will NOT be expected to pay any definitive proportion of their monthly income towards monthly mortgage payments.
The servicer of the loan will make use of a variety of modification tools in order to reduce the borrower’s monthly payment. Depending on the case, more than one strategy may be necessary in order to achieve the targeted 20 percent reduction.
Potential modification strategies include:
- An interest rate reduction plan.
- Extending the payment plan of the loan out over a longer period of time (up to 480 months.)
- Principle forbearance (permission to pay off part of the original loan amount at a later time) of up to 30 percent, or until the loan is worth the same amount as the market value of the property.
While most borrowers at least 60 days behind on their payments will be approved for a Flex modification, some will be ineligible because of their loan’s history.
Borrowers ineligible for a Flex Modification include:
- Those seeking to modify a loan on a secondary residence, and are less than 60 days delinquent.
- Those who are being considered for another modification option.
- Those who are in the middle of a trial period of another modification program.
- Those who have participated in a Flex Modification or a Flex trial plan within the past year, and failed to meet their monthly payments.
For more information regarding the Flex program and the evolution of loan modification processes in general, visit the links below.
Written By Emily Wasserman, a summer intern at Molleur Law Office