Fannie Mae and Freddie Mac will offer a new loan modification initiative designed to help troubled borrowers avoid foreclosure and remain in their homes, according to an announcement today from the Federal Housing Finance Agency.
Consequently loan servicers will be required to send a Streamlined Modification Solicitation Offer to troubled borrowers who are delinquent on their mortgages for at least 90 days beginning July 1, 2013.
The purpose of the initiative is to simplify the way a borrower’s current mortgage payments are reduced and modify their current loan without requiring the borrower to document their income and financial hardship. The offers will include a reduction in mortgage payment based on a fixed interest rate, potential extension of the loan term to 40 years, or a principal forbearance for qualified underwater borrowers.
This new initiative requires the following qualifications:
- The borrower’s current loan to be owned or guaranteed by either Fannie Mae or Freddie Mac
- The borrower must be 90 days to 24 months delinquent on his or her mortgage
- The borrower’s current mortgage must be at least 12 months old with a loan-to-value ratio of 80% or higher
- The borrower’s current mortgage cannot have been previously modified on more than two occasions
- The borrower must make three on-time payments during a three-month trial period.
If these qualifications are met, the borrower will sign an agreement making the new loan modification terms permanent. If the borrower fails to make a payment during the trial period, then the borrower is no longer eligible for the Streamlined Modification.
However, the borrower can submit a Borrower Response Package to the lender to determine if there are other alternatives to foreclosure.
This new initiative is set to expire on August 1, 2015, and may also be used for second homes or investment properties if the above-referenced qualifications are met.