Fannie Mae, Freddie Mac Offer New Loan Modification Program

Fannie Mae and Freddie Mac last week announced new programs to provide relief for distressed borrowers.

The Flex Modification programs will replace the Home Affordable Mortgage Program, the government mortgage assistance program developed in 2009 in the wake of the subprime loan crisis. HAMP is set to expire Dec. 31.

The Flex Modification is expected to provide a 20 percent payment reduction for eligible borrowers. A high percentage of those who are at least 60 days delinquent would be eligible; the modification could also be an option for those who are current or less than 60 days delinquent in certain situations.

The similar programs from Fannie Mae and Freddie Mac offer payment reductions and a streamlined application process. It incorporates recommendations from the Federal Housing Finance Agency (which oversees the government-sponsored enterprises’ safety and soundness), HUD and industry stakeholders, including the Mortgage Bankers Association.

MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills called development of the Flex Modification programs a “big win” for the industry.

“The Flex Modification is designed to provide relief for distressed borrowers in a broadly accessible fashion, addressing two critical issues that determine a successful loan modification–deep payment reductions and a simple, streamlined process,” Mills said. “MBA commends the GSEs and FHFA for the thoughtful development process that integrated stakeholder input–such as MBA’s One Mod proposal–to create a modification program that builds on the lessons learned from HAMP. We hope that other government insurers and guarantors use ‘Flex Modification’ as a starting point as they think about their own loss mitigation procedures so that HAMP is eventually replaced by a streamlined, universal loan mod product.”

“The new Flex Modification announced by Fannie Mae and Freddie Mac today was designed based on lessons learned from crisis-era loan modification programs to help borrowers stay in their homes and avoid foreclosures whenever possible,” said FHFA Deputy Director Sandra Thompson. “The Flex Modification also reflects input received over the course of extensive engagement with lenders, mortgage insurers, consumer advocates and other stakeholders. By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers. And it will provide borrowers who face permanent hardships with a sustainable modification.”

The Flex Modification leverages components of Fannie Mae’s and Freddie Mac’s versions of HAMP, as well as the GSEs’ Standard and Streamlined Modifications, which will be replaced by the Flex Modification in late 2017.

The program was shaped by a white paper published in July by the Treasury Department of the Treasury in conjunction with HUD and FHFA, Guiding Principles for the Future of Loss Mitigation (https://www.treasury.gov/press-center/press-releases/Documents/guiding-principles-future-of-loss-mitigation.pdf). It laid out five factors–accessibility, affordability, accountability, sustainability and transparency–that should form the foundation of future loss mitigation programs.

“The Flex Modification is an adaptive program that will allow us to continue to assist struggling homeowners in a changing housing environment and simplify the process for servicers to deliver those solutions,” said Bill Cleary, Vice President of Single-Family Servicing Policy with Fannie Mae. “We believe the program is flexible to adjust for regional and even local differences in housing. It provides the greatest amount of assistance to those areas in need.”

“We believe it strikes the appropriate balance between borrower relief and economic responsibility,” said David Lowman, executive vice president of Freddie Mac’s Single-Family Business.

The new modification would replace the current Fannie Mae and Freddie Standard and Streamlined Modification offerings on and after October 1, 2017. In the interim, servicers must continue to evaluate borrowers for Standard and Streamlined Modifications following the evaluation hierarchy.

In September, MBA unveiled its One Mod: Principles for Post-HAMP Loan Modifications (http://www.onemod.org/), a proposed successor program to HAMP. One Mod was developed by The Future of Loss Mitigation Task Force, a diverse MBA working group consisting of representatives from 20 member companies. The program offers at least a 20 percent payment reduction for eligible borrowers while minimizing the excessive documentation requirements that have caused hardship for HAMP applicants. The Task Force is co-chaired by Alex McGillis of Quicken Loans and Erik Schmitt of JP Morgan Chase.

Similar to the principles developed by Treasury, HUD and FHFA, One Mod incorporates four guiding themes that drive successful loss mitigation programs–Accessibility, Affordability, Sustainability and Transparency. From these themes, the Task Force developed 10 core principles:

–Eliminate “gaps” that consumers can fall through.
–Only require the consumer submit documentation that is directly related to their eligibility for the modification.
–Produce a positive outcome for the investor.
–Result in a decrease in mortgage payments for the consumer immediately following modification.
–Distinguish between short-term hardships and longer-term hardships.
–Use waterfall of options and loss mitigation solutions that are based on criteria that have a clear impact on re-default rates.
–Provide a solution that maximizes the relief that the consumer is eligible for in the first loss mitigation offer.
–Offer home retention and liquidation options at the same time.
–When a term extension is utilized, educate the consumer about how additional money applied to monthly payments can change the amortization schedule.
–Provide clear disclosure to the consumer of their loss mitigation options and the rationale for the selected loss mitigation option presented to the consumer.

MBA’s Mills said he was “pleased” that the Flex Modification programs incorporate many of the concepts and principles developed by the MBA Future of Loss Mitigation Task Force.

Additional information about Fannie Mae’s Flex Modification program can be accessed at https://www.fanniemae.com/content/fact_sheet/fanniemae-flex-modification-fact-sheet.pdf.

Additional information about Freddie Mac’s Flex Modification program can be accessed at http://www.freddiemac.com/singlefamily/service/pdf/flex_modification_factsheet.pdf.