Avoiding foreclosure is not easy, but an FHFA loan modification can help (FHFA is the Federal Housing Finance Agency.) When you are struggling to meet your mortgage repayments it can take a great deal of work to avoid foreclosure and that dreaded eviction day. A recently federal announcement in March regarding a new loan modification program has given many people hope in their attempts to save their home.
The Home Affordable Modification Program (HAMP) has been in existence for some time, and was theoretically able to help mortgagees facing hardship. However, the bureaucracy needed to initiate financial assistance was counter-productive. Those in trouble had to provide documentary evidence of their hardship, and also documentation revealing their income and expenditure and other financial details.
This level of bureaucracy resulted in significant delays, which reduced the appeal and effectiveness of the program to those using it. In many cases the foreclosure was proceeding at a rapid pace while the bureaucratic process was grinding slowly along.
The FHFA Loan Modification Process
The recently announced FHFA loan modification process is friendlier and makes avoiding foreclosure a quicker and less stressful process. There is no need to provide documentary evidence of income, hardship or inability to pay. If that sounds too good to be true, then read on, because it all makes good sense.
First, there are qualifications that limit those able to apply for help under the FHFA loan modification program:
- The mortgages must be backed by Fannie Mae or Freddie Mac.
- You must be at least 90 days but no more than 2 years behind on your mortgage repayments.
- The mortgage must be a first lien – it does not apply to loans backed by your equity.
- The mortgage loan must be at least a year old.
- The amount owed must be a minimum of 80% of the value of the home.
Avoiding Foreclosure Requires Commitment
If you are only a month or two behind with your payments you cannot apply – yet! You must also display an ability to make the revised payments by making three payments by the agreed dates. If you can manage that, then you should be able to meet all your payments in a similar way.
Avoiding foreclosure takes a commitment from you, and if you fail to meet that commitment, foreclosure will naturally follow. Hence the trial period, after which you are on the FHFA program.
The FHFA loan modification program designed to make avoiding foreclose possible to many people begins on 1st July, 2013. It is due to end on August, 2015 but who knows how it may be extended if it proves a success. Those offering mortgages must identify those that are maintaining their payments, and make them a loan modification offer by July 1st, 2013.
How the Loan Modification Works
- Mortgage owners will be offered an interest rate the same or less than their current rate.
- The term will be extended to 40 years. This will significantly reduce monthly repayments.
- Those with negative equity will have no interest applied on up to 30% of the unpaid balance.
- These factors are expected to reduce the average monthly payment by up to 30%.
Avoiding foreclosure is the prime objective, and reducing monthly payments is one way to achieve that. A reduction in the monthly commitment of those defaulting on their monthly repayments is probably one of the best ways to avoid further problems.
The FHFA Loan Modification program does not lower the principal owed, so is fair to lenders while making avoiding foreclosure easier for borrowers with financial difficulties.