By the Lending Lies Team
Fannie Mae and Freddie Mac have launched a new loan modification program for troubled mortgages known as “Flex Modification.” The GSE’s have an issue with rising defaults and questionable paperwork and the Flex Modification allows them to modify the underlying defective “loan” and gloss over the false endorsements, assignments and chain of title issues. Brilliant!
The new flexible loss mitigation tool is a combination of the impotent HAMP, the Standard Modification, and the Streamlined Modification, and will replace the trio as early as March 2017.
Loan servicers are beginning to implement the Flex Modification at that time, but will be required to participate starting October 1st, 2017.
The Home Affordable Modification Program (HAMP) expired at the end of December.
How the Flex Modification Works
It is obvious that Fannie and Freddie are attempting to lure as many homeowners in or near default inot the Flex Modification program. Unlike the original HAMP modifications that required burdensome amounts of paperwork (that was intentionally lost), the required borrower documentation needed to get a loan modification under this new program is surprisingly minimal.
A major problem with HAMP was the complicated paperwork and long, drawn out processes. Not to mention that loan servicers who had little incentive to modify a loan when they could foreclose, typically threw the homeowner’s application into the trash.
HAMP has been revised to make it easier for borrowers to get relief, and it appears those lessons have been applied to the new Flex Modification, at least in theory. However, the reality is that a servicer who illegally forecloses on a home receives a financial windfall, compared to a paltry fee for modifying.
Those who are less than 90 days behind on their mortgage must submit a Borrower Response Package (BRP) in order to be evaluated for a Flex Modification, which will target a 20% monthly payment reduction and a 40% Housing Expense-to-Income (HTI) Ratio. Why such aggressive measures when the previous HAMP program would rarely reduce principal or monthly payments? The GSE’s have always been hostile to homeowners wishing to modify preferring to foreclose. Less than 40% of all applicants were given loan modifications.
Freddie Mac noted that a “high percentage” of those at least 60 days delinquent would be eligible, and in some cases it could also be an option for those who are current on the mortgage or less than 60 days late.
However, that latter group would need to occupy their homes in order to get relief.
For those more than 90+ days delinquent, the program targets the same 20% payment reduction, but requires no “borrower documentation.”
Likely this program will be used to grease the runways, as Timothy Geitner of the Fed admitted back in 2008 when HAMP was devised. It appears that the GSEs know they have MAJOR issues with the underlying loans they guarantee and they are resorting to issuing modifications to wipe the slate clean. I predict that there is language in the agreement that states the homeowner will not sue their servicer or the GSE’s once the loan is modified. The GSEs, Fed and OCC are not benevolent entities- they are cold, calculating bankers where profit is all that matters.
In other words, they realize you’re in imminent danger of foreclosure and that they have major legal liabilities so they’re going to make it easy for you to get assistance. Without knowing more about the program I can already tell it doesn’t pass the sniff test.
Perhaps this program will actually provide relief by lowering monthly mortgage payments. It is likely that borrowers will be incentivized to hit the 90 day plus delinquent status to take advantage of the easier modification option also. Not that it matters because the entire program appears to be created to “fix” loans that are damaged beyond repair.
It is interesting that many loan servicers are exiting the market while the GSEs are attempting to paper over their fraudulent history. There are unseen forces in the background that are influencing change. It appears that servicers and faux lenders are running scared or do they know something we don’t?
In any case, the program will also allow for principal forbearance to an 80% mark-to-market loan-to-value ratio (MTMLTV), but this amount must not exceed 30% of the unpaid principal balance.
Some key changes from the Standard Modification include:
• Housing-to-income ratio for borrowers less than 90 days delinquent changed from less than/equal to 55% to 40%
• No amortization choice for borrowers with an MTMLTV ratio of less than 80%
• Must now forbear principal down to a 100% MTMLTV ratio rather than the prior 115%
Flex Modification Eligibility
– Mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac (GSEs do not own loans)
– Must be 60 or more days delinquent unless owner-occupied and in imminent default
– Must submit a Borrower Response Package (will the servicer actually process the package when they have more incentive to foreclose than modify?)
– Must have an eligible hardship
– Must verify income
– Must have been originated 12 months prior to evaluation date
– Must target a 20% principal and interest payment reduction and 40% front-end DTI
*If 90 days+ delinquent, a Borrower Response Package is not required, and servicer is not required to confirm a borrower’s hardship or income.
Ineligible for Flex Modification
– FHA, VA, and USDA loans
– Mortgages subject to recourse
– Mortgages secured by second homes or investment properties less than 60 days late
– Mortgages that have been modified three or more times previously
– Mortgages approved for a short sale or deed-in-lieu
– Mortgages under a different modification program
– Mortgages that don’t make it through the trial period or aren’t brought current