As of December 31, 2016, the Home Affordable Modification Program or HAMP will end. HAMP was designed to help financially struggling homeowners avoid foreclosure by obtaining a loan modification that makes mortgage payments affordable through interest rate reductions, fixing the interest rate, principal reductions or through forbearance and term extensions. While other loan modification programs exist, HAMP provided loan modification guidelines that applied to most servicers along with some added financial incentives for borrowers, servicers and investors such as cash incentive payments. Now, at the stroke of midnight on the 31st, HAMP will end and servicers will fall back on other loan modification programs.
Enter the Flexible Modification foreclosure prevention program (a mouthful) or as I call it Flex Mod. Applicable to Freddie Mac and Fannie Mae loan, Flex Mod was developed by the Federal Housing Finance Authority (FHFA) and other interested parties based on feedback from homeowners, services, and consumer advocates. Flex Mod is designed to provide streamlined guidance for servicers regarding loan modification as well as cash incentive payments to reduce delinquencies. Here is what Freddie Mac and Fannie Mae are saying about the program:
- Flex Mod will be applied to all mortgage loans that are determined to be in imminent default (according to guidelines set out in the program).
- Payment relief will include allowing forbearance of principal to an 80% mark-to-market loan-to-value ratio for eligible borrowers (not to exceed 30% of the unpaid principal balance).
- This forbearance of principal will be accomplished 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.
- Servicers will receive cash incentive payments based on how long a loan is delinquent; the servicer will receive a larger payment the short the period of delinquency.
Flex Mod is set to launch on October 17th of 2017 and so it will be interesting to see how this program works for affected homeowners and if the program leads other servicers who are not under Freddie Mac or Fannie Mae’s umbrella to try and stream line their loan modification programs. I have to dig into the details but for now I am hopeful this program is a sign of things to come..
Here is the link to the FHFA’s news release on the program, which also contains links to Freddie Mac and Fannie Mae press releases: https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-FHFA-Deputy-Director-Sandra-Thompson-on-New-Loan-Mod-Offering-for-Delinquent-Borrowers.aspx