Fannie Mae and Freddie Mac have announced the creation of the Flex Modification foreclosure prevention program, which will assist struggling homeowners in keeping their homes by lowering their monthly mortgage payments.
Eligible borrowers are expected to receive a 20% reduction in their monthly payment when they participate in the program.
Fannie and Freddie have said that a “high percentage” of borrowers more than 60 days past due on their mortgage will be eligible for participation in the Flex Modification program as well as some less than 60 days delinquent and some who are current on their loan.
Flex Modification and HAMP
Flex Modification includes elements of the Home Affordable Modification Program (HAMP) which expired at the end of 2016, and the Fannie and Freddie Standard and Streamlined Modifications.
The program's creation takes “input from a wide range of industry participants,” but was guided by a white paper titled Guiding Principles for the Future of Loss Mitigation published by the Department of Treasury, Housing and Urban Development (HUD), and the Federal Housing Finance Agency (FHFA). That paper stated that future loss mitigation should take into account five guiding principles of accessibility, affordability, accountability, sustainability, and transparency.
"The Flex Modification is an adaptive program that will allow us to continue to assist struggling homeowners in a changing housing environment and simplify the process for servicers to deliver those solutions," said Bill Cleary of Fannie Mae.
Fannie Mae and Freddie Mac Standard and Streamlined modifications will still be available until October 1, 2017 when Flex Modification replaces them. Until then “servicers must continue to evaluate borrowers for Standard and Streamlined Modifications following the evaluation hierarchy.”
Flex Modification Details
Like HAMP, Flex Modification will pay mortgage loan servicers for completing modifications to make it more profitable for them to keep a homeowner in their property rather than foreclose. For loans that haven't been paid in 120 days or less, servicers will receive $1,600. Loans 121 to 210 days delinquent are eligible for a $1,200 fee, and $400 for loans more than 210 days delinquent.
A fact sheet released by Fannie Mae gives the following highlights of the program:
The Fannie Mae Flex Modification can be applied to all mortgage loan delinquencies, and to mortgage loans that are deemed to be in imminent default in accordance with the Servicing Guide.
The program will offer additional payment relief allowing forbearance of principal to an 80% mark-to-market loan-to-value ratio (MTMLTV) for eligible borrowers (not to exceed 30% of the unpaid principal balance) in two ways:
For borrowers less than 90 days delinquent, the program requires a complete loss mitigation application and targets a 20% payment reduction and 40% housing expense-to-income ratio.
For borrowers 90 or more days delinquent, the program targets a 20% payment reduction and requires no borrower documentation.
HAMP has been around since 2009 and more than a million homeowners have participated in the program. It's been scheduled to expire before, but was renewed. As the forever end of the program approached, the mortgage industry and the government have been contemplating what modifications will look like after HAMP.
The Mortgage Bankers Association suggested a HAMP successor called One Mod, and the Consumer Financial Protection Bureau released a set of guiding principles for loss mitigation options post-HAMP.
Keep in mind that in-house modifications, which are given by a lender according to their own guidelines, will continue to be an option.
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