Denha & Associates, PLLC Blog


By: Lance T. Denha, Esq.

Fannie Mae and Freddie Mac recently began to offer a new, simplified loan modification program to help troubled borrowers avoid foreclosure and stay in their homes. This new program is called the Streamline Modification Initiative which took effect July 1, 2013.

Under the Streamlined Modification Initiative, mortgage servicers are required to send you a letter offering you a modification if you meet all of the following criteria:

• Your loan is owned or guaranteed by Fannie Mae or Freddie Mac.
• You are 90 days (3 months) to 720 days (24 months) delinquent on your mortgage.
• You have a first-lien mortgage that is at least 12 months old.
• Your loan-to-value ratio is equal to or greater than 80%.

Loans that have been previously modified two or more times are ineligible for the program. Strategic defaulters are also excluded. (According to the Fair Housing Administration (FHFA), Fannie Mae and Freddie Mac have existing screening measures to prevent strategic defaulters from taking advantage of the program.) Second homes and investment properties are now eligible to qualify and participate in the streamline program.

As of July 1, 2013, mortgage servicers must identify eligible borrowers and send them an offer letter that states the terms of the modification, including the monthly payment required for a Streamlined Modification. Eligible borrowers will receive a letter in the mail with the following offer: make three on-time trial payments, and after that the mortgage will be permanently modified according to the new terms. The letter will spell out the dollar amount of the new mortgage payment based on a fixed interest rate, may extend the payment terms to 40 years and provide principal forbearance of some kind for certain underwater borrowers.

The borrower must successfully complete the three-month trial period to obtain a permanent modification. If the borrower makes the three payments on time, the mortgage will be permanently modified. However, if the borrower misses a payment during the trial period, he or she will not be eligible for a permanent modification under the program (though another foreclosure alternative may be available). The Streamlined Modification Initiative is a temporary program that is scheduled to end on December 31, 2015. This means all Streamlined Modification trial period plans must have an effective date on or before that date.

The program is intended to minimize losses to Fannie Mae and Freddie Mac, the government-sponsored enterprises that insure most U.S. mortgages, and to help troubled borrowers avoid foreclosure and stay in their homes, according to FHFA.

The key feature of this program is that borrowers do not have to document an eligible hardship or their income to be qualified for a Streamlined Modification. This is different from The Home Affordable Mortgage Program (HAMP) and other loan modification programs. The FHFA believes that by reducing the amount of documentation required to obtain a modification, significantly more borrowers will be able to save their homes.

Even if you are eligible for a Streamlined Modification, you are still encouraged to provide financial, income, and hardship documentation to your servicer so that you can be considered for other modification options, like HAMP. While submitting a full application may sound like a hassle compared to the ease of a Streamlined Modification, you might get a more affordable monthly payment through HAMP (or another program) than you would under the Streamlined Modification Initiative.

This is encouraging news and seeking out housing counselors and lenders for more information is highly recommended to take advantage of these programs.