Borrowers will not be required to document their hardship under FHFA’s new streamlined modification program launching in July.
“Obtaining financial and hardship documentation has been one of the biggest challenges to loan modifications,” said Corinne Russell, public affairs officer for the Office of Congressional Affairs and Communications at FHFA. “In addition, the earlier in delinquency a borrower is helped, the more successful that borrower will be in retaining the home. Armed with this information, FHFA directed the Enterprises to develop the streamlined modification initiative.”
Eligible borrowers will be 90 days to 24 months delinquent and the loan must be guaranteed by Fannie Mae or Freddie Mac. The first-lien mortgage has to be at least 12 months old with a loan-to-value ratio equal or greater than 80 percent, according to FHFA’s Frequently Asked Questions page. Loans that have been modified at least two times previously are not eligible.
The initiative will be available from July 1, 2013 through Aug. 1, 2015.
“I don’t think there are many loans out there that fit in that small window,” said Fred Kreger, president of the California Association of Mortgage Professionals and a certified mortgage consultant at American Family Funding.
Kreger and Ken Bates, loan officer at Military Home Loans, both voiced concerns about strategic defaulters and how FHFA would prevent abuse.
“FHFA directed both Enterprises to develop proprietary screening tools that will identify strategic modifiers and exclude them from being solicited for the streamlined modification,” Russell.
Without proof of hardship or income, the modification will be based on the current balanced owed, according to Russell.
Bates said it may benefit someone in minor trouble, whose mortgage was maybe $3,000 a month and had a reduction in income and bringing the amount to $2,700 a month might make a difference.
“That doesn’t describe most people, to my knowledge,” Bates said. “For someone in real financial hardship, this isn’t going to be the program they want to use. Lowering a mortgage by 10 percent is putting a Band-Aid on a gushing head wound. It’s not going to stop the bleeding and won’t be supportable.”
Starting July 1, servicers must identify eligible borrowers who are 90 days to 24 months delinquent and send an offer letter. The offer includes a trial period plan specifying the dollar amount of the new mortgage payment based upon a fixed interest rate, extending the payment terms to 40 years and providing principal forbearance for certain underwater borrowers, according to the FAQ page. Those borrowers can accept the trial period plan by sending the payment to the loan servicer.
If the borrower makes on-time payments during the three-month trial period, he or she will be asked to sign an agreement making the terms of the modification permanent.