If you’re a homeowner with a mortgage bought by Fannie Mae or Freddie Mac and have fallen on hard times, there is a solution for you. Since the end of the Home Affordable Modification program (HAMP) which expired back in December of 2016, the FLEX Modification program has been the answer for many homeowners who have found themselves facing hardship and in need of payment relief.
Mortgage Modification, unrelated to a mortgage refinance, is when a lender reevaluates and adjusts the terms of a mortgage loan agreement for the purpose of making it easier for the borrower to make the monthly payments. The Flex mortgage modification program was created to help eligible homeowners who are at least 60 days delinquent on their mortgage payments find relief and avoid foreclosure.
Flex Modification Basics
Created in the later half of 2017, Flex mortgage modification serves as a successor to the Home Affordable Modification program. Through the Flex Modification program, homeowners having difficulties coming up with the money for their mortgage payments who don’t qualify for a refinance have a way out in the form of a mortgage modification. The program is exclusive to those with mortgages under Fannie Mae and Freddie Mac.
Loosely following the HAMP guidelines, the Flex modification program allows lenders to modify the terms of a mortgage loan to reduce the burden on borrowers at risk for foreclosure. Modifications vary based on each individual situation, but in many cases there are a few changes that make the most impact on the ultimate goal, which is to reduce the monthly payment amount.
Possible adjustments that are made during a mortgage modification include lengthening the loan term, reducing the interest rate or the principal amount, or postponing payments. A typical mortgage modification aims to reduce a borrower’s monthly mortgage payment to 31% of their monthly income. Through the Flex program, monthly mortgage payments are reduced by 20%, and it even allows lenders to also take into consideration the amount of time that the borrower has been delinquent as well as the value of the home.
The program is known as the “Flex” Modification program due to the much more flexible eligibility requirements that it has in relation to its predecessor.
How Flex Mortgage Modification Works
Like other mortgage modification programs on the market, Flex modification entails modifying an existing mortgage loan’s terms in an attempt to reduce the monthly payment. This of course is separate and apart from a refinance, which works by replacing a mortgage loan with an entirely new loan that has more favorable loan terms for the borrower.
In the Flex modification guidelines, lenders are able to assess your financial hardships, the severity of your delinquency, and the value of your home in order to formulate a plan on which actions to take. Once your particular case is reviewed, then the adjustments are proposed.
When a plan of action is determined, the lender sometimes implements a trial period with the updated terms. If the borrower can make the newer, reduced payments without fail during the trial period, then the modification is fully approved and implemented in full.
What Adjustments can be Made Through Flex Modification?
Typical adjustments through the Flex program include one or more of the following:
Lowering the Interest Rate
Adding missed payments to the remaining principle
Extending the loan term
Lowering the interest rate is a quick fix as far as mortgage modification goes. A lower interest rate results in instantly lowered monthly payments. It is much of the same for extending the loan term. Stretching payments out over a longer period of time (up to 40 years from the date of the modification) will also drastically reduce your monthly payments. The caveat being that with an extended loan term, you will be paying more interest over the life of the loan, and therefore it will actually cost you more in the long run.
When lenders decide to add your overdue payments back into the principal amount, it fixes the delinquency issue, but not the issue of payment relief. Also, an increase in the principal amount without any of the other modification actions would only serve to increase the monthly payments.
Forbearance is the action to be most cautious about. With forbearance, a portion of the debt is removed temporarily and the monthly payments are recalculated based on the remaining loan balance. This helps to reduce the monthly payment, but not without a case for concern. The portion of the principal that was removed will be charged as a type of balloon payment. Payment of the balloon amount can be due when the borrower refinances the loan, sells the house, or at an agreed upon date as the loan matures.
How to get a Flex Mortgage Modification
If you have a mortgage owned by Fannie Mae or Freddie Mac, and find it hard to make your monthly mortgage payments, then seeking a Flex modification could help you avoid the risk of foreclosure. Getting a mortgage modification could prove much easier than scrambling to refinance a mortgage after missing a payment.
But keep in mind that mortgage modification isn’t something to take lightly. It is reserved for borrowers who have faced or are currently facing financial hardships and are already at risk for foreclosure. You can’t just do it to try to save money.
If you feel you are at risk of foreclosure, the first thing you should do is call your lender and discuss your options. If you are eligible for any mortgage modification programs, then they will let you know, and you can proceed from there.
Eligibility Criteria for the Flex Modification Program
As with any home loan product or refinance, being eligible for Flex modification depends on meeting the criteria stated in the program. Borrowers eligible for Flex modification are required to meet the following criteria:
Must be no less than 60 days delinquent on a mortgage payment
If not, must be determined to be in a state of “imminent Default” by the lender
Must submit a Borrower Response Package which details:
An eligible hardship as stated by the program guidelines
The hardship must be proven to be a case of a loss of income or unmanageable increase in expenses
Note that unemployment is typically considered to be a temporary hardship, and most lenders will only go as far as to offer unemployment forbearance in lieu of a full mortgage modification.
Proof of a reliable source of income.
Unemployment benefits typically do not qualify as a source of income for mortgage modification.
Your home loan must be guaranteed or owned by Fannie Mae or Freddie Mac. Mortgages insured by other government agencies such as FHA Loans, USDA Loans, or VA Loans do not qualify for Flex modification.
The mortgage must be at least one year old
Must be a first-lien mortgage.
In terms of the property, there are very few restrictions. The property can be owner occupied as a primary residence, it can be a second home, or an investment property to be eligible. In addition, the property is allowed to be vacant or condemned and still be eligible.
Flex Mortgage Modification: In Review
It is never easy for a homeowner to know that they can no longer afford to make their monthly mortgage payments. Talking about the possibility of foreclosure is hard no matter the circumstance. To make things worse, not many homeowners are aware that they have options outside of selling or refinancing. In fact, a mortgage modification may be the only silver lining to many hardships that homeowners can face.
The Flex modification is a last ditch effort to avoid foreclosure for any homeowner with a mortgage owned by Fannie Mae or Freddie mac. The program is the best option for those looking to regain control over their monthly mortgage payments and get a little payment relief in the wake of HAMP expiring.
If you’re worried about being eligible, don’t give up hope. The program is named for its flexible eligibility requirements, after all.
If you are unsure about being able to make your mortgage payments, don’t wait until its too late. Call your lender now and find out if you are eligible for Flex mortgage modification or any other mortgage modification program. As always, the specialists at home.loans are also standing by to advise you on any of your mortgage needs.