Streamlined Modification Initiative Launched to Help Severely Delinquent Borrowers

March 27, 2013 No Comments »
Streamlined Modification Initiative Launched to Help Severely Delinquent Borrowers

Rather surprisingly, a new program will launch in July to help severely delinquent borrowers lower their monthly payments and modify their mortgages.

While it sounds like the same old story of years past, it differs from previous efforts in that it doesn’t require documentation of hardship or financial situation.

So borrowers can simply get the assistance they need without jumping through hoops, which may have discouraged some from seeking help earlier.

Streamlined Modification Initiative Guidelines

While this seemingly no-strings-attached program looks to be a good deal for borrowers, it’s not available for everyone.

In fact, it’s not being offered to “good” borrowers, only those who are at imminent risk of foreclosure.

That said, borrowers must be anywhere from 90 days to 24 months delinquent to participate.

Additionally, they must have a first mortgage at least 12 months old and a loan-to-value ratio (LTV) equal to or greater than 80%.

And as always, the program is only available for homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac.

However, loans that have already been modified twice are not eligible for assistance.

In summary:

  • Borrower must have a first mortgage at least 12 months old with LTV of 80%+
  • Borrower must be 90 days to 24 months delinquent on mortgage
  • Loan must be owned or guaranteed by Fannie/Freddie
  • Available for second homes and investment properties

Assuming you meet all the eligibility requirements, your loan servicer will be required to send a “Streamlined Modification Solicitation Offer” letter in the mail.

The letter will detail the new dollar amount of the modified payment, based on a fixed mortgage rate with an extended amortization period of 40 years.

In some cases, principal forbearance will be also be offered. It’s unclear how much lower mortgage payments will be, though the FHFA did mention that the Home Affordable Modification Program (HAMP) may provide a more affordable payment than that offered via the Streamlined Modification Initiative.

(HAMP requires a payment that is 31% of the borrower’s gross monthly income.)

If a borrower accepts the offer, they will be placed in a “Streamlined Modification Trial Period Plan,” which requires three months of on-time trial payments.

Once the three payments are made, the loan modification will be made permanent.

If borrowers miss a payment during the trial period, they will not be eligible for a permanent modification, though other remedies may be available. Probably not good ones…

Tip: More beneficial terms may be available to those who are able to provide documentation of their financial situation.

Why Did They Launch This Program Now?

Apparently the FHFA learned that early borrower outreach is critical for success. So they launched this program in 2013…

Yes, the mortgage crisis developed nearly five years ago, but the help has now arrived.

In reality, they’re just trying to prevent imminent foreclosures and keep the housing train chugging along. Too much is at stake now to reverse course.

The FHFA said it chose to target borrowers who are extremely delinquent because they are more likely to have a permanent hardship, whereas those who have just missed one or two payments are more likely to get back on track without assistance.

Additionally, existing programs already target these types of marginal borrowers, including HAMP and HARP.

For those of you thinking you can game the system, the FHFA claims it has “proprietary screening measures” in place to prevent strategic defaulters from trying to intentionally take part in the Streamlined Modification Initiative.

In other words, don’t stop making your monthly mortgage payments in an effort to get relief through this new program. That’s not a good idea, especially without knowing how good the assistance will be.

The Streamlined Modification Initiative will begin on July 1 of this year, so borrowers should expect to receive something in the mail sometime in July (hopefully).

And the program will come to a close on August 1, 2015.

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