Fannie Mae and Freddie Mac have launched a brand new loan modification program for troubled mortgages known as \”Flex Modification.\”
In a nutshell, the newest flexible loss mitigation tool is actually a combination of HAMP, the Standard Modification, plus the Streamlined Modification, and will switch the trio as early as March 2017.
Loan servicers ought to implement the Flex Modification then, but aren\’t required to do it until October 1st, 2017.
The Home Affordable Modification Program (HAMP) is slated to expire at the conclusion of the this.
How Flex Modification Works
One of what stood out to me was a defieicency of borrower documentation needed to purchase a loan modification under this new program.
A significant problem after the mortgage crisis was a chance to modify mortgages without complicated paperwork and long, prolonged processes.
That led to revisions of HAMP to learn effectively for borrowers to get relief, but it appears those lessons have been applied to the new Flex Modification.
Like its predecessors, the Flex Modification will endeavor to lower monthly housing payments to support at-risk, delinquent borrowers avoid foreclosure.
Those whorrrre less than 90 days behind for their mortgage must submit a Borrower Response Package (BRP) to be evaluated for a Flex Modification, that may target a 20% monthly payment reduction and also a 40% Housing Expense-to-Income (HTI) Ratio.
Freddie Mac noted that your \”high percentage\” of those at least 60 days delinquent could well be eligible, and in some cases it could often be an option for those who are current to the mortgage or less than Sixty days late.
However, that latter group will have to occupy their homes in order to get relief.
For those more than 90+ days delinquent, the program targets precisely the same 20% payment reduction, but requires no \”borrower documentation.\”
In simple terms, they realize you\’re in imminent danger of foreclosure, so they may make it easy for you to get payment assistance.
After all, they learned from the prior crisis that lowering monthly mortgage payments is the ticket to lower defaults.
My only fear here is that borrowers might be incentivized to kick that 90+ day delinquent status to take advantage of the easier modification option.
In any case, the program will also allow for principal forbearance to an 80% mark-to-market loan-to-value ratio (MTMLTV), but this amount mustn\’t exceed 30% of the unpaid principal balance.
Some key changes with the Standard Modification include:
? Housing-to-income ratio for borrowers fewer than 90 days delinquent changed from less than/equal to 55% to 40%
? No amortization selection for borrowers with an MTMLTV ratio of less than 80%
? Must now forbear principal due to a 100% MTMLTV ratio rather than the prior 115%
Flex Modification Eligibility
– Mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac
– Ought to be 60 or more days delinquent unless owner-occupied and in imminent default
– Must submit a Borrower Response Package
– Have to have an eligible hardship
– Must verify income
– Have to have been originated 12 months ahead of evaluation date
– Must target a 20% principal and interest payment reduction and 40% front-end DTI
*If 90 days+ delinquent, a Borrower Response Package is not required, and servicer is not required to make sure that a borrower\’s hardship or income.
Ineligible for Flex Modification
– FHA, VA, and USDA loans
– Mortgages be subject to recourse
– Mortgages secured by second homes or investment properties less than 60 days late
– Mortgages that have been modified 3 or more times previously
– Mortgages approved for just a short sale or deed-in-lieu
– Mortgages using a different modification program
– Mortgages that won\’t make it through the trial period or aren\’t brought current