Struggling borrowers should be on the look-out for relief in the mail. Under the new Streamlined Modification Initiative offered through the Federal Housing Finance Agency, mortgage servicers must (you read that correctly MUST) now offer borrowers who are 3 to 24 months delinquent a plan to help avoid foreclosure….a little vague, but we’ll take it.
Streamlined Modification Initiative vs. HAMP
Unlike HAMP (Home Affordable Modification Program), the Streamlined Modification Initiative carries with it no burdensome income and asset documentation requirement. Borrowers may be approved without even having to offer proof of a financial hardship.
The elimination of burdensome paperwork requirements and hardship limitations will be a tremendous benefit to borrowers, said Timothy McFarlin, the Managing Partner at McFarlin LLP, a foreclosure defense and real estate litigation law firm in Irvine California. “Once the program is initiated and offered to a borrower, all that is required of them is to begin making trial payments,” he said. “As far as I can tell, there isn’t even a formal acceptance process, just a first payment. Once borrowers make three monthly payments on time the modification becomes permanent.”
Streamlined Modification Initiatives Limitations and Details
There are some limitations borrowers should be aware of. The Streamlined Modification program applies only to loans owned or guaranteed by Fannie Mae or Freddie Mac. The program has already begun, however there doesn’t appear to be any way for borrowers to contact the Federal Finance Housing Agency for help, it is designed to just come in the mail. The program expires Dec. 31, 2015.
The program applies broadly to primary residences, investment properties and second homes. Up to 20% equity is acceptable to qualify (any more than 20% equity seems to disqualify the property), and there does not appear to be any negative equity limitation.
The intention of the Streamlined Modification program is to get affected borrowers into modified loans early enough to prevent foreclosure. To calculate the new payment the same formula is used as for standard modifications under Fannie and Freddie, according to Diane Cipollone, the director of the Fair Lending Training Program for the National Fair Housing Alliance. This formula is not based on income and affordability but rather is a straight modification of rate and term with the objective to lower monthly payments.
“The payment that results merely has to be equal to or less than the unmodified payment,” Ms. Cipollone said. Borrowers likely to benefit from the streamlined program the most include those who are behind on payments because of “a disruption in income or some unexpected expense, and but for the arrears, they’re back on track,” she said. Under the streamlined modification formula, the arrears are added to the loan balance and the term extended to 480 months (40 years). The interest rate is currently hovering around 4 percent.
Homeowners who are “upside-down” — or owe more than the value of their home — will not have to pay interest on up to 30 percent of the unpaid principal balance (UPB). The program does not offer borrowers a reduction in the principal balance, however.
Streamlined Modification Initiative Attorney
If you feel you should qualify for the Streamlined Modification Initiative but your servicer has not offered you the program, McFarlin LLP may be able to help. Our real estate litigation practice focuses on suing lenders to enforce homeowners’ rights. Call us today to see if you qualify: (888) 728-0044.