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The Streamlined Modification Initiative: Help For Delinquent Homeowners

Published on Monday - July 01, 2013

By virtue of the Federal Housing Finance Agency (FHFA), hundreds of thousands of delinquent homeowners may be awarded the chance to make up for past mortgage transgressions. The aptly named Streamlined Modification Initiative is projected to get underway this week and save struggling homeowners a substantial amount of money. The program is intended to provide homeowners that have gotten behind on mortgage payments with a means of getting back on track. Borrowers with mortgages backed by Fannie Mae and Freddie Mac, who are at least 90 days behind on their payments, will be awarded the opportunity to entertain competing lenders for lower monthly payments.

The FHFA, otherwise known as the entity responsible for overseeing Fannie May and Freddie Mac, claims to have helped approximately 2.7 million delinquent homeowners. With the launch of the Home Affordable Modification Program in March 2009, the FHFA has prevented many from loosing their homes to foreclosure. However, the 1.1 million borrowers that are still behind on their mortgage payments require more assistance. Therefore, this week, the FHFA plans to launch the Streamlined Modification Initiative.

Unlike the Home Affordable Modification Program, and similar predecessors, the Streamlined Modification Initiative will not require extensive financial paperwork. Accordingly, those who qualify to partake in the initiative must demonstrate the ability to make new payments for a designated trial period of three months. Those who complete the trial period without missing a payment will receive the modified rates throughout the duration of their mortgage.

Officials have acknowledged that a distinct lack of financial paperwork will serve to facilitate the needs of hundreds of thousands of Americans. Representatives from the FHFA reiterated that extensive paperwork and procedures that accompany foreclosure prevention serve to cripple efforts. Paperwork gets lost, borrowers are asked to provide documents over and over again, and evaluating a borrower’s eligibility can be time consuming.

“This is a no-brainer and should have been done years ago,” said David Berenbaum, who coordinates fair housing and fair lending compliance initiatives for the National Community Reinvestment Coalition.

Delinquent homeowners with mortgages backed by Freddie Mac and Fannie Mae will receive offers from lenders to lower their monthly payments. In doing so, lenders will either extend the term of the loan or reduce the interest rate. The principal on the loan, however, remains untouched, as the FHFA’s acting director will not allow it.

Nevertheless, the modifications could result in big savings for anyone with a high-rate loan who was unable to refinance to the historically low rates of the past couple of years.  Furthermore, in assisting those who need mortgage help, the FHFA may boost the housing recovery.

A 30-year, $200,000 loan with an interest rate of 5.5 percent could drop as much as $300 a month if the term is extended to 40-years with a subsequent rate of 4 percent. Savings like this could provide a boost to the entire economy and stimulate substantial economic growth.

To qualify for the new initiative, homeowners must retain a mortgage that is backed by either Freddie Mac or Fannie Mae. In addition to the mortgage backing, the loan must be at least 12 months old and owners can’t be more than 24 months behind on their payments. Their principal balance must also be 80 percent or more of the value of their home. While the FHFA has not indicated how many homeowners will partake in the program, it is expected to last though December of 2015.

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