The Federal Housing Finance Agency (FHFA) has released a simplified and streamlined loan modification program to help struggling homeowners afford and keep their homes, thus reducing the number of foreclosures. This plan has been designed to make the mortgage modification process simple and to make the requirements for qualifying allot easier than ever before. As you would imagine there is already rumors and false information circulating around the web.
Here are some Questions & Answers about the FHFA Loan Modification Program to clear up some of the controversy:
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Q: What is a loan modification?
A: By definition, a loan modification is a change, revision or adjustment to your loan. The most commonly modified terms of a mortgage are:
Conversion of an Adjustable-Rate-Mortgage (ARM) to a fixed-rate mortgage. A change of interest rate. Amortization term Loan's Maturity date Unpaid principal balance
The mortgage modifications are designed to enable borrowers to manage their monthly payment obligations.
Q: What is a Streamlined Loan Modification Plan?
A: A streamlined loan modification is a kind of loan reorganization or restructuring that requires less paperwork, and a simple and easy procedure. It aims to help struggling homeowners afford their mortgage payments by setting a benchmark ratio, calculated by their monthly gross income.
Q: What is the mortgage payment benchmark ratio?
A: Due to its essentiality, an industry standard has been agreed upon to help homeowners keep their homes. The benchmark ratio for the calculation of an affordable payment is 38% of the homeowner's monthly gross income. The servicer will move to the next steps once this is determined, such as: extending the loan's term, reducing the interest rate and forbearing interest - until an affordable payment is reached. Otherwise, the situation will be taken into a case-by-case basis using the borrower's cash flow budget.
Q: What organizations were involved in creating this loan modification program?
A: This was achieved through the combined efforts of HOPE Now and 27 servicer partners, US Treasury, FHA (Federal Housing Administration) and FHFA. The FDIC helped design the plan from their experience and assistance in creating the IndyMac bank mortage modification plan.
Q: Is this plan similar to the FDIC's IndyMac protocol?
A: This plan uses the same affordability target as the indymac plan, but it differs on some aspects due to the need of flexibility among the servicers.
Q: How is HOPE Now Involved in this program?
A: HOPE NOW employs some of the leading servicers today. With their collaboration with Fannie Mae, Freddie Mac and FHFA, they have helped design this plan to help mortgage holders avoid foreclosure.
Q: Why is there not a foreclosure moratorium included in this loan modification program?
A: According to the plan, lenders will suspend foreclosure proceeding if the borrowers fulfill certain requirements and requests. Borrowers must stay in contact with their lenders, have a desire to keep their home, and have the ability to afford their new monthly payments once a mortgage modification is approved.
Q: Why was this program created?
A: Because the government wants to eliminate as many unnecessary foreclosures as possible. They have simplified the mortgage modification eligibility requirements and procedures to allow more homeowners to seek help before they lose their homes to foreclosure.
Q: Who is eligible for this streamlined loan modification program?
A: The following is the basic criteria for this plan:
Homeowner/borrowers who have missed three or more payments. The property needs to be the homeowner's primary residence. A homeowner who has not filed for bankruptcy. Mortgage loan must be under Freddie Mac, Fannie Mae or participating investors. The homeowner must be in a financial hardship.
Q: Why does an applicant need to be 90 days late on their mortgage or more to qualify?
A: Because, the plan's goal is to help borrowers who are most at risk. Borrowers who have already missed more than 3 months of mortgage payments are much closer to a foreclosure sale than one who is still current. HOPE NOW still has other alternatives for borrowers who do not qualify for this plan. On a side note, purposely missing your mortgage payments in order to qualify is a sure way of getting denied for this plan. The lenders can usually tell when a borrower has not paid their mortgage intentionally.
Q: How many people will this new program benefit?
A: Thousands of borrowers are expected to be helped by the streamlined loan modification plan. It is difficult to estimate the number of people who will benefit, but if this streamlined mortgage modification plan is implemented effectively, more borrowers in foreclosure will be saved.
Q: How do borrowers apply for this program?
A: The borrower must contact their bank and submit the requested information, such as a monthly gross income worksheet, association dues and fees, and a hardship letter.
Q: How do borrowers complete the loan modification process?
A: Borrowers will need to sign the loan modification agreement and return it with the first month's payment. Once this occurs the homeowner will enter the three month trial period. If they stay current on their mortgage during this time, the mortgage modification will become permanent.
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