The Federal Housing Finance Agency (FHFA) has just announced that Fannie Mae and Freddie Mac will offer mortgage principal reductions to certain seriously delinquent, underwater borrowers who are still struggling in the aftermath of the financial crisis to help them avoid foreclosure and stay in their homes.
FHFA said they developed the program to assist targeted borrowers avoid foreclosure while also adhering to FHFA’s mandate to preserve and conserve the assets of the Enterprises. This program will allow eligible borrowers to obtain a loan modification that permanently forgives a portion of their mortgage debt.
In order to qualify for the program, your mortgage must be owned by Fannie Mae or Freddie Mac and the loan must be for your primary residence. You must be 90 days or more delinquent on your mortgage payments as of March 1, 2016. Borrowers who become more than 90 days delinquent after this date are not eligible. Your mortgage must also have an outstanding unpaid principal balance of $250,000 or less; and whose mark-to-market loan-to-value (MTMLTV) ratios exceed 115%.
Below I have listed the qualifying details and guidelines in detail.
FHFA Director Melvin L. Watt had said this about the new program:
“The national housing market has significantly improved in recent years but there are still areas of the country where home values have not recovered and negative equity remains a real problem. The Principal Reduction Modification program we are announcing today, along with the changes we are making to our NPL sales guidelines, will allow an opportunity for delinquent, underwater borrowers in these areas to avoid foreclosure and save their homes,” Watt said.
“This plan will no doubt be viewed by some as too small and too late and viewed by others as too large and unnecessary. However, the plan is consistent with FHFA’s statutory obligation to ‘maximize assistance for homeowners’ by providing some borrowers what could well be their final opportunity to avoid foreclosure. It is also consistent with our statutory obligation to provide this assistance in ways that we reasonably expect will not have adverse economic consequences for the Enterprises. By meeting both of these statutory obligations, the program satisfies my commitment to implement a principal reduction plan only if we could structure one that would be a ‘win-win’ for both borrowers and the Enterprises.”
The Mortgage Bankers Association (MBA) President David Stevens said: “FHFA’s program design attempts to mitigate some of these concerns and the result is a narrow focus on lower loan balance and severely delinquent mortgages. Hopefully this targeted program will help some families who can meet these requirements.”
PRINCIPAL REDUCTION MODIFICATION PROGRAM GUIDELINES
• Underwater borrowers who meet the program’s eligibility criteria will receive a solicitation letter containing terms for a modification no later than October 15, 2016.
• The modification terms include capitalization of outstanding arrearages, an interest rate reduction down to the current market rate, an extension of the loan term to 40 years, and forbearance of principal and/or arrearages up to a certain amount to be converted later to forgiveness.
• Upon completion of three timely payments and acceptance of the final modification, the principal forbearance amount calculated under the Streamlined Modification will instead be forgiven.
• Servicers will require time to implement the Principal Reduction Modification program. Before the program is fully implemented, borrowers who believe they may be eligible for a Principal Reduction Modification and wish to pursue one before the program is fully implemented can accept an offered Streamlined Modification that will halt foreclosure proceedings but will not guarantee principal forgiveness.
• If the borrower is later determined to be eligible for a Principal Reduction Modification, the Streamlined Modification’s principal forbearance will be converted to principal forgiveness.
• Non-eligible borrowers will continue to benefit from the payment relief granted under their Streamlined Modification but will not receive principal reduction.
• Borrowers should not default on their mortgage or on an existing modification in an attempt to become eligible for a Principal Reduction Modification. To be eligible, borrowers must be at least 90 days delinquent as of March 1, 2016. Borrowers struggling to pay their mortgage or who have additional questions about the program should contact their servicer (the company to which they send their mortgage payments).
PRINCIPAL REDUCTION MODIFICATION ELIGIBILITY
• Borrowers must have a first-lien mortgage that is owned or guaranteed by Fannie Mae or Freddie Mac.
• Borrowers must be at least 90 days delinquent as of March 1, 2016.
• The mortgage must have a pre-capitalization unpaid principal balance of $250,000 or less as of March 1, 2016.
• The mark-to-market loan-to-value ratio of the mortgage must be more than 115% after capitalization of arrearages as of the date the borrower is evaluated for the modification.
• The property must be owner-occupied. Investment properties are ineligible.
• Eligible loans must generally meet all other Streamlined Modification eligibility criteria.
• Borrowers who are otherwise eligible for the Principal Reduction Modification and enter into a modification with a first trial payment due date between May 1, 2016 and December 1, 2016 will be eligible to have their principal forbearance converted toforgiveness.
PRINCIPAL REDUCTION MODIFICATION KEY DATES
• March 1, 2016 – Eligibility cut-off date; borrowers who become more than 90 days delinquent after this date are not eligible.
• July 15, 2016 – Loan servicers must solicit, for a Streamlined Modification, all borrowers who are potentially eligible for Principal Reduction Modification on or before this date.
• October 15, 2016 – Loan servicers must solicit all borrowers eligible for the Principal Reduction Modification starting no later than this date.
• December 31, 2016 – Final date by which servicers may solicit borrowers eligible for the program or inform borrowers that they are eligible to have principal forgiven.