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WASHINGTON – April 11, 2013 – Effective July 1, mortgage servicers must offer eligible borrowers at least 90 days delinquent an easy way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. The loans apply to those owned by Fannie Mae and Freddie Mac, according to the Federal Housing Finance Agency (FHFA)
The new Streamlined Modification Initiative eliminates administrative barriers. It becomes effective July 1, 2013, and expires on Aug. 1, 2015.
If eligible borrowers show a willingness and ability to pay by making three on-time trial payments, the mortgage will be permanently modified. However, documenting income and financial hardship could result in additional savings.
“This new option gives delinquent borrowers another path to avoid foreclosure,” says FHFA Acting Director Edward J. DeMarco. “We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings.”
Frequently asked questions
1. Why is FHFA directing Fannie Mae and Freddie Mac to launch the Streamlined Modification Initiative?
Throughout the financial crisis, one of the biggest challenges in assisting troubled homeowners has been the administrative challenge of document collection. Since the inception of the Making Home Affordable (MHA) program, FHFA, Fannie Mae and Freddie Mac have been measuring and monitoring borrower and servicer responsiveness to borrower assistance programs to understand why many borrowers are not able to get a loan modification. Removing the administrative barriers associated with document collection and servicer evaluation should enable significantly more borrowers to access the available options for home retention.
2. When will the Streamlined Modification Initiative be available?
The Streamlined Modification Initiative will begin July 1, 2013, and end Aug. 1, 2015. Fannie Mae and Freddie Mac are currently issuing guidance to their mortgage servicers to implement the Streamlined Modification Initiative.
3. What are the eligibility requirements?
The loan must be owned or guaranteed by Fannie Mae or Freddie Mac. Homeowners must be 90 days to 24 months delinquent, and have a first-lien mortgage that is at least 12 months old with a loan-to-value ratio equal to or greater than 80 percent. Loans that have been modified at least two times previously aren’t eligible.
4. How is the Streamlined Modification Initiative different from other Fannie Mae or Freddie Mac mortgage modification options?
The key difference: Borrowers don’t need to document their hardship or financial situation. They can accept a Streamlined Modification Offer by simply making the trial period payments and agreeing to the terms of the modification. However, their modification terms could be more beneficial if they do document their financial situation and work with their servicer.
5. How does the Streamlined Modification Initiative differ from the Home Affordable Modification Program (HAMP)?
Borrowers can take advantage of HAMP as soon as they run into financial troubles, but they must provide financial, income and hardship documentation to their servicer to be considered. The Streamlined Modification Initiative is only available for borrowers at least 90 days delinquent and it doesn’t require documentation. HAMP allows servicers to evaluate the borrower for modification terms based on an affordable payment that is 31 percent of the borrower’s gross monthly income, and could provide a more affordable monthly payment than the Streamlined Modification Initiative. In addition, borrowers may be eligible to receive financial incentive payments under HAMP.
6. Will all delinquent borrowers with Fannie Mae or Freddie Mac mortgages receive a Streamlined Modification Trial Period Plan after July 1 if 90+ days delinquent?
As of July 1, 2013, servicers must identify eligible borrowers who are 90 days to 24 months delinquent and send them an offer letter that states the terms of the modification, including the monthly payment required for a Streamlined Modification. These eligible borrowers can accept a Streamlined Modification Trial Period Plan by sending the specified payment to the loan servicer.
7. How long will the trial period last?
Similar to the Standard Modification, the Streamlined Modification Trial Period Plan will last three months. If the borrower makes on-time payments during the trial period and meets necessary criteria, the borrower will be asked to sign an agreement making the terms of the mortgage modification permanent.
8. What happens if a borrower misses a payment during the Streamlined Modification Trial Period Plan?
If the borrower misses a payment, he/she won’t be eligible for a permanent Streamlined Modification. However, the borrower may submit a Borrower Response Package to the servicer and be evaluated for other alternatives to foreclosure, including other modification options.
9. Should struggling borrowers wait until the Streamlined Modification takes effect on July 1, 2013 to contact their servicer when they miss a payment?
Borrowers struggling to make payments should call their servicer as early as possible to be evaluated for the most appropriate alternative to foreclosure. A call to the loan servicer doesn’t exclude a borrower from receiving the Streamlined Modification solicitation.
10. When should I expect a letter from my servicer?
Servicers will be required to begin evaluating borrowers for a solicitation on July 1, 2013. Depending on the volume of delinquent borrowers and servicer capacity and systems, letters should be sent within a timely period.
11. What if I stop paying my mortgage for three months so I can get the modification?
Fannie Mae and Freddie Mac have proprietary screening measures to prevent strategic defaulters from taking advantage of a Streamlined Modification. Additionally, only borrowers with loans more than 12 months old with a mark-to market loan-to-value ratio greater than 80 percent and not had two or more previous loan modifications will be solicited for participation.
12. Why limit eligibility to borrowers who have missed three or more monthly payments?
Many borrowers who miss one or two payments have a temporary hardship and often reinstate their mortgage to current status. Borrowers who are current or less than 90 days delinquent and have a permanent hardship should contact their servicer to submit a Borrower Response Package so they can be evaluated for a mortgage modification or other alternative to foreclosure.
13. Does the Streamlined Modification cover borrowers with delinquent Freddie Mac or Fannie Mae mortgages secured by second homes and/or investment properties?
Yes. Delinquent borrowers with Fannie Mae or Freddie Mac mortgages secured by second homes or investment properties are eligible to participate in the Streamlined Modification Initiative and may receive trial period plan offers, provided they also meet other eligibility criteria.