The Federal Housing Finance Agency “FHFA” has recently announced that effective July 1, 2013, Fannie Mae and Freddie Mac will offer a new streamlined loan modification initiative to help certain eligible homeowners to participate in a new loan modification program referred to as the Streamlined Modification Initiative “SMI”.
There are a multitude of benefits for borrowers who are eligible to participate in SMI. For instance, the borrower is not required to provide the financial and hardship documentation that is required in other federal loan modification programs such as HAMP? There are no more cumbersome document collection and submission requirements to servicers and lenders who in the past have conveniently lost borrower documentation. As a result, the somewhat subjective approach servicers and lenders applied to determine whether a borrower was eligible to participate in other loan modification programs does not exist in this program.
The other huge benefit is that the borrower is not required to submit a request to participate in the program. Instead, the servicer is legally required to evaluate potential borrowers and to send eligible borrowers a Streamlined Modification Solicitation letter and Streamlined Modification Trial Period Plan Notice. Upon receiving the solicitation letter, the borrower can simply submit the modified payment to begin the trial period without submitting any sort of borrower response package. Borrowers are also required to accept the terms of the modification. Borrowers who successfully complete the three month trial period may enter into a permanent modification.
Eligible Property Types
- Primary Residence, Second Home or an Investment Property (owner occupied or non-owner occupied)
- Vacant properties including condemned properties
Borrower Eligibility – Borrower may be eligible, if he or she meets the following requirements
- Must be 90 to 720 days delinquent
- First lien mortgage that is at least 12 months old with a loan-to-value ratio equal to or greater than 80 percent
- Loans that have been modified at least two times previously are not eligible
- Loan must be guaranteed or owned by Fannie Mae or Freddie Mac
- Principal and interest (P&I) payment must be less than or equal to the pre-modification principal and interest payment
When Does SMI Begin?
- SMI starts July 1, 2013 and ends August 1, 2015
How Long Does the Trial Period Last?
- 3 Months
What Happens After 3 Month Trial Period?
- If the borrower makes on-time payments during the trial period and meets all other required criteria, the borrower will be asked to sign an agreement making the terms of the mortgage modification permanent
What happens if the Borrower is Late or Misses a Trial Period Payment?
- The borrower is no longer eligible for SMI, and the borrower would need to submit a request to the servicer for evaluation for other alternative programs. It is important to note that the borrower would most likely be required to submit financial and/or hardship documentation for alternative programs
What if you are a Borrower who believes you are Eligible for SMI and you have not received an SMI Solicitation from your Servicer?
- Immediately contact your servicer and request an evaluation for the program
Servicers are not required to start evaluating potential borrowers until July 1, 2013, and depending on the number of eligible borrowers, it may take a servicer awhile to get to you, consequently, do not wait for the servicer to contact you, contact the servicer, if you believe you meet the eligibility requirements