FHFA Streamline Modification: No Hardship Requirement
Update: Freddie Mac announced on May 13th that servicers can immediately begin to implement the FHFA Streamline Modification.
Foreclosure Prevention – Modification is One Option
A loan modification is often one of the best solutions for those struggling to pay their monthly mortgage. If the lender agrees to a modification – and that is a big IF – then the borrowers can both stay in their home and make affordable monthly payments.
Since the housing crash of 2007-2008 and the big drop in housing prices, borrowers have faced one or both of these two problems:
- Negative Equity making it difficult to sell their homes
- Drop in Income / Increased Expenses making it difficult to make monthly mortgage payments.
President Obama’s Making Home Affordable Program addressed these problems through a number of programs including:
The HAMP Loan Modification
There are a number of loan modification programs including the HAMP program. A mortgage loan modification aids the borrower by setting up a lower payment. A loan modification can include a combination of the following features:
- Longer payment period
- Lower Interest rate
- Principal Reduction
The HAMP guidelines allow for a loan modification if the borrower is delinquent or in danger of falling behind in payments. The original HAMP program included strict rules including:
- Primary residence only
- Payments had to exceed 31% of income
The program was updated in June 2012 to allow for more eligible borrowers and less stringent debt to income criteria. HAMP modifications are available for Fannie Mae and Freddie Mac loans, without principal reduction.
Overall, the HAMP experience hasn't been too successful, as many of the borrowers are not able to complete the trial period, and even many of those who enter the permanent modification drop out.
The FHFA Streamline Modification
The FHFA announced in March 2013 a new FHFA Streamline Modification available for Fannie Mae and Freddie Mac Loans. The program runs between July 1, 2013 and August 1, 2015.
Eligibility: The main points of the program are as follows:
- The loan must be a Fannie Mae or Freddie Mac owned loan.
- The loan must be at least 12 months old, with a first-lien mortgage.
- The Loan-to-value ratio must be equal to or greater than 80%.
- The borrower doesn’t need to show proof of hardship.
- The borrower must be delinquent for at least 90+ days (and no longer than 24 months) which means that they will damage their credit score and hurt their chances to refinance your mortgage (including through the HARP program).
- The loan can’t have previously been modified two times or more are disqualified.
- The program is not limited to a primary resident property. Investment properties and second homes may also be eligible for the FHFA streamline modification. Once a borrower is accepted into a trial period, they must make their payments on time.
- Review your budget. Remember, if you fall behind in your payments your credit will be hurt and you will make refinancing more difficult (or impossible).
- Consider all possible foreclosure alternatives, including the HARP refinance, HAMP loan modification and HAFA short sale programs.
- If you have a Fannie Mae or Freddie Mac owned loan and have fallen behind in payments (90+), then a FHFA streamline modification may be a way to lower your payments through a combination of longer term and/or lower interest.
- If you have a hardship, then make sure your evaluate a HAMP loan modification.