A new program announced for conventional agency mortgages provides a streamlined loan modification process for seriously delinquent borrowers. Steps are being taken to minimize abuse in the program.
The simplified loan modification initiative announced Wednesday by the Federal Housing Finance Agency promises to minimize losses at the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. while helping distressed borrowers avoid foreclosure.
FHFA is promoting the program as an easy way for seriously delinquent borrowers to lower their monthly payments and obtain a loan modification without providing financial or hardship documentation — as is required for other modification programs.
Data from the regulator indicated that the 30-day rate of delinquency on all loans serviced for Fannie and Freddie, including loans in the process of foreclosure, was 9.11 percent as of Dec. 31, 2012, improving from 9.49 percent three months earlier.
FHFA reported that 1.3 million permanent modifications have been completed on Fannie and Freddie loans since they were thrown into conservatorship in September 2008. Around 0.4 million were completed through the Home Affordable Modification Program.
Less than 15 percent of loans that were modified in the first-quarter 2012 had missed at least two payments as of the end of the fourth quarter, according to FHFA data.
According to the announcement, willing borrowers can avoid the administrative barriers associated with loan modifications.
“Throughout the financial crisis, one of the biggest challenges in assisting troubled homeowners has been the administrative challenge of document collection,” the regulator explained in a set of frequently asked questions. “Since the inception of the Making Home Affordable program, FHFA, Fannie Mae and Freddie Mac have been measuring and monitoring borrower and servicer responsiveness to borrower assistance programs to understand why many borrowers are not able to get a loan modification. Removing the administrative barriers associated with document collection and servicer evaluation should enable significantly more borrowers to access the available options for home retention.”
The streamlined modification initiative will be offered to borrowers who are between 90 days and 24 months past due on their residential loans.
Eligible loans must be at least 12 months old and owned or guaranteed by Fannie or Freddie. The loan-to-value ratio must exceed 80 percent.
In addition to primary residences, delinquent loans secured by second homes and investment properties are eligible for streamlined modifications.
Loans that have been previously modified at least two times are ineligible.
Modifications will become permanent after the borrower makes three on-time trial modification payments. Borrowers who become ineligible because they miss a trial payment can still be evaluated for other alternatives to foreclosure, including other modification options.
McLean, Va.-based Freddie noted in an announcement accompanying Bulletin No. 2013-5 that the streamlined modification offers the same terms as the standard modification it announced in September 2011.
Washington, D.C.-based Fannie issued Servicing Guide Announcement SVC-2013-05 outlining the program for its approved servicers.
Servicers will be required to offer the program to eligible borrowers beginning July 1. The program ends on Aug. 1, 2015.
“Homeowners are encouraged to continue working with their servicer to evaluate all of their foreclosure prevention options,” FHFA said in its notice. “Documenting income and financial hardship could result in a modification with additional savings for the borrower.”
Edward J. DeMarco, acting FHFA director, added that borrowers will still be encouraged to provide documentation in support of other modification options that would likely result in additional borrower savings.
The two secondary lenders are using existing proprietary screening measures to prevent borrowers who have strategically defaulted from participating in streamlined modifications.
Fannie Mae Senior Vice President Leslie Peeler indicated in a statement that borrowers who are current on their loans should first attempt to refinance before asking for a loan modification to avoid the credit impact of a delinquency and benefit from the greater savings.
