If you’re already lagging behind on payments and you’ve received a notice of debt, you still have time to do something about it. So, find your mortgage statement and call your lender to notify them of your circumstances. They can then outline your options.
If you have already defaulted, you might still qualify for a Fannie Mae Flex Modification.
What is this, exactly?
What Is A Loan Modification?
A loan modification is where you agree with your mortgage lender to reduce your monthly payment so it’s more affordable.
To accomplish this, your lender may adjust the payment amount, interest rate, or repayment duration.
Who Is Fannie Mae?
Fannie Mae is a play on the initials FNMA (the Federal National Mortgage Association).
Fannie Mae is a government-sponsored enterprise (GSE), which helps ensure the US housing market is liquid enough to keep mortgages affordable and available. Improving the accessibility of credit enables mortgage servicers to provide more flexible repayment terms to borrowers.
You might wonder why your mortgage is owned by Fannie Mae and not the bank which gave you the mortgage. Well, Fannie Mae buys mortgages from banks as investment opportunities.
The bank that lent you the money to pay for your home most likely sold your loan to Fannie Mae. Fannie Mae backs many loans, which means the debt will be paid even if the borrower defaults.
In fact, Fannie Mae owns the majority of mortgages in the US.
Why Does Fannie Mae Buy Mortgages?
Fannie Mae buys mortgages in order to keep the mortgage market fluid so mortgage lenders can offer sufficient flexibility to borrowers.
The mortgage will either sit in Fannie Mae’s portfolio or packaged with other mortgages as mortgage-backed securities (MBS).
What are Mortgage-Backed Securities?
Mortgage-backed securities are parts of mortgage loans that are sold to investors who profit by repackaging those loan components and selling them on to other investors.
Why Do Lenders Sell Mortgages to Fannie Mae?
Lenders sell their mortgage debts to Fannie Mae to raise funds so they can lend to more people.
Fannie Mae Flex Modification
The Fannie Mae Flex Modification replaced the Home Affordable Modification Program (HAMP) which ended in 2016. HAMP was originally set up to assist homeowners facing foreclosure after the 2008 financial crash.
In 2016, HAMP was discontinued and Fannie Mae was set up to help people facing foreclosure and keep the homeowner market moving.
The Fannie Mae website stresses the importance of applying for the Flex Modification program as early as possible.
The earlier you apply, the more you will save in the long run.
If you are eligible, Flex Modification can reduce your monthly payments by 20%.
If you’re behind, those payments get tacked onto the debt so you don’t have to repay the backlog immediately. This is called capitalizing and provides a huge relief if you’re faced with spiraling debts.
Your mortgage servicer may forebear some of your loans. Forbearance is where the lender excludes a portion of the outstanding amount when calculating your new payment plan. This amount still has to be paid at some point, but forbearance of a portion of your mortgage will give you some temporary breathing space.
Flex Modification Eligibility
To be eligible for Flex Modification, your loan must be owned by Fannie Mae or Freddie Mac. You can find out if your mortgage servicer sold your home loan to Fannie Mae by using their look-up tool (2).
Your home and loan must also conform to other criteria…
The loan in question needs to be a conventional first mortgage (ie issued privately rather than government-backed). If your mortgage is not government-backed, and your down payment is less than 20%, you must take insurance to protect your repayments.
Note: Conventional mortgages are also referred to as conforming loans as they conform with Fannie Mae and Freddie Mac requirements. A first mortgage is where the organization that issues the loan gets paid first before anyone else if your home is sold after a foreclosure.
Further criteria need to be met including:
You must show you have a regular stable income and the means to afford repayments.
Your mortgage must be over 12 months old.
You’ll need to contact your mortgage servicer in order to apply for the Flex Modification program. They will advise you on whether you are eligible and how to apply.
Some mortgage servicers have been known to refuse modifications. If you feel you are wrongly denied assistance with Flex Modification, it’s worth consulting a foreclosure lawyer.
When Are You NOT Eligible for Flex Modification?
There are a number of situations in which Flex Modification will be denied.
If you have a Veteran Affairs (VA), Federal Housing Association (FHA) or United States Department of Agriculture (USDA) loan, you’re ineligible for Flex Modification.
You will also be denied access to this program if:
- The loan is for a second property less than 60 days in default.
- Your mortgage has been modified three or more times previously.
- Your home has been approved for a short sale or a deed-in-lieu.
- Your mortgage is currently under modification.
- Your loan became delinquent in the first 12 months of your mortgage.
The loan is for a second property less than 60 days in default
If you have an investment property or second home, your payment must be over 60 days late to qualify for the Flex Modification program.
You might be tempted to wait until after the 60-day period. Be careful if you do as may still be refused Flex Modification and owe more as a result. It’s always worth speaking with an experienced foreclosure lawyer about the nuances of this Fannie Mae program.
Your mortgage has been modified three or more times previously
If you have previously modified your loan, you’ll need to explore different avenues to avoid foreclosure.
If you’re unsure, it’s worth contacting a foreclosure lawyer so they can clarify your situation.
Your home has been approved for a short sale or a deed-in-lieu
It’s best to try for a loan modification before you go adopt for a short sale or deed-in-lieu approach. If you’re considering either of these methods, you should consult a lawyer to check if there’s a better option available.
Your mortgage is currently under modification
You cannot modify a loan more than once.
Your loan became delinquent in the first 12 months of your mortgage
If you defaulted within 12 months of getting the mortgage, you’ll need to explore other options to avoid foreclosure and stay in your home. For reliable advice, seek legal counsel from a deeply experienced foreclosure lawyer.
Applying for Flex Modification
How you apply depends on whether your loan is under 90 days delinquent or over 90 days delinquent.
Loans Under 90 Days Delinquent
If you apply for Flex Modification before 90 days delinquency, you need to supply a Borrower Response Package.
The Borrower Response Package is a file with information about your financial status to help your mortgage provider assess your situation. You must include information about any taxable and nontaxable income. You can also include the regular income of a non-borrower in the household.
The Borrower Response Package also requires you to complete hardship documentation and you may also be required to submit details of your tax returns. In this section, you detail any sudden hardships that led you to default such as divorce or the death of a co-borrower.
More information on completing the Borrower Response Package can be found on the Fannie Mae website (2).
Loans Over 90 Days Delinquent
If more than 90 days have elapsed since you defaulted on your loan payments, you are not required to provide a borrower response package.
Applying for a flex loan modification is complex. You should call your mortgage servicer as soon as possible. The earlier you take this step, the more favorable repayment options you’ll find.
More general information on Fannie Mae can be found on their website. (3)
To reach an experienced foreclosure defense attorney, contact Fine Law Offices at (800) 939-3819 for a FREE consultation today.