After July 1st, 2013, borrowers who are late on their mortgages guaranteed by Fannie Mae or Freddie Mac may see a letter from their servicer explaining their eligibility for the new Streamlined Modification Initiative (SMI). According to the official press release by the Federal Housing Finance Agency (FHFA), the program aims to add a simplified option for homeowners to save their homes from default and foreclosure.
SMI will run until August 1st, 2015. The program, which is similar to the Home Affordable Modification Program (HAMP), will provide an easy way for borrowers who are 90 days late on their mortgages to reduce their monthly payments and stay in their homes without having to produce piles of financial and income documents. The President Obama administration has faced criticism over the sheer amount of red tape that HAMP is subject to, and thus SMI can be seen as a no-doc solution.
Once borrowers receive a Streamlined Modification Solicitation Offer letter, they will be invited to participate in a trial period that will require them to make a reduced monthly payment tied to a low fixed-interest rate for a term of 40 years. SMI will have a certain level of forbearance in the sense that underwater borrowers will not pay interest on any portion of the loan principal that is greater than what the property is worth.
Only mortgages guaranteed by Fannie or Freddie qualify for SMI. The level of delinquency must be between 90 days and 24 months, and the loan-to-value ratio should be 80 percent or more. Borrowers that have modified their mortgages two or more times in the past do not qualify for SMI.
Although SMI is a no-doc program, borrowers who provide documentation will be offered greater benefits such as lower interest rates. Borrowers who are not yet 90 days late on their mortgage payments can still apply for modification if they feel they will not be able to improve their finances quickly, but they will have to apply for a regular HAMP solution rather than the new SMI.
Just like with HAMP, borrowers who satisfactorily make SMI payments in the three months of the trial period will be able to make their modifications permanent. Borrowers who miss payments during the trial period may qualify for other foreclosure prevention programs. SMI can also be used to modify mortgage loans on second homes and investment properties.