A new FHFA plan could make it easier for borrowers to qualify for mortgage relief.
Under the new plan, mortgage servicers must offer homeowners who are three to 24 months behind on their payments a plan to help them avoid foreclosure.
The Streamlined Modification Initiative helps delinquent homeowners modify their mortgage and lower their monthly payments, similar to the Home Affordable Modification Program.
But unlike HAMP, which has been around for more than four years, the new program allows borrowers to qualify for mortgage relief without submitting extensive financial information and other paperwork or proving a hardship.
Eligible borrowers will receive a letter in the mail with the following offer: make three on-time trial payments, and after that the mortgage will be permanently modified according to the new terms. The letter will spell out the dollar amount of the new mortgage payment based on a fixed interest rate, may extend the payment terms to 40 years and provide principal forbearance of some kind for certain underwater borrowers.
The program is intended to minimize losses to Fannie Mae and Freddie Mac and to help troubled borrowers avoid foreclosure and stay in their homes, according to the FHFA.
While the amount saved will vary, the FHA
says the program intends to create a 30% average savings for borrowers.
"This new option gives delinquent borrowers another path to avoid foreclosure," FHFA acting director Edward DeMarco said in a statement, although even if you are eligible for a Streamlined Modification, you are still encouraged to provide financial, income, and hardship documentation to your servicer so that you can be considered for other modification options, like HAMP.
HAMP may still be better for some borrowers because the program might offer more savings than the new program, according to FHFA. Under HAMP, modification terms are based on payment plan that amounts to 31% of the borrower's monthly income. Because no paperwork is required under the streamlined program, the new monthly payment is based on a standardized formula.
Borrowers must not have more than 20% equity in their homes, which could be primary residences, second homes and investment properties. However, the plan is only offered to those with mortgages backed by Fannie or Freddie.