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In a loan modification, the bank agrees to alter your mortgage terms, lowering your monthly payment to a more affordable amount. If Fannie Mae or Freddie Mac owns your loan, you might qualify for the "Flex Modification" program, where you'll get a special loan modification. Under this program, the loan servicer takes a series of steps, which might include reducing the interest rate and, possibly, extending the loan term to lower your monthly payments by as much as 20%.
The Federal National Mortgage Association (FNMA), also called "Fannie Mae," and the Federal Home Loan Mortgage Corporation (FHLMC), also called "Freddie Mac," are government-sponsored enterprises that own or back (guarantee) many mortgages in the United States.
A borrower typically takes out a loan to buy a home from a bank or mortgage company. However, the original lender usually won't keep the loan. Instead, the lender sells the loan to a bank or investor, like Fannie Mae or Freddie Mac, on what's commonly known as the "secondary mortgage market."
After purchasing a loan from a bank or mortgage company, Fannie Mae or Freddie Mac either keep the mortgage in their portfolio or package the loan with other loans into mortgage-backed securities, which are then sold to private investors. Fannie Mae and Freddie Mac sometimes guarantee the loans they sell to investors (that is, they ensure that an investor gets paid on the loan even if the borrower defaults).
Fannie Mae and Freddie Mac set guidelines for loan modifications in their portfolios.
Who's Who in the Mortgage Servicing Business
Lender or originator. A "lender" or "originator" is the party that loaned you the money for your home loan.
Investor. Often, the originator (the original owner of the loan) subsequently sells the loan to a new owner, called an "investor."
Servicer. A "loan servicer" is the company that handles the loan account. The servicer collects monthly payments, manages escrow accounts, processes loan modification applications, and supervises the foreclosure process when borrowers don't make their payments. Sometimes, the loan owner also acts as the servicer. Other times, the owner sells the right to service the loan to another company.
The Flex Modification program helps borrowers with a Fannie Mae- or Freddie Mac-owned loan. This program, which replaces the now-expired Home Affordable Modification Program (HAMP) program, is supposed to reduce an eligible borrower's mortgage payment by about 20%.
With a Flex Modification, the servicer has to take one or more of the following steps to lower the borrower's payment:
Fannie Mae and Freddie Mac require their servicers to review all borrowers for a Flex Modification when the borrower is between 90 and 105 days behind in payments and send all eligible borrowers a trial plan offer. So, your servicer might offer you this type of modification even if you don't apply for it.
But you can also apply if a foreclosure sale hasn't happened yet. Under federal law, i f you submit your complete application more than 37 days before a scheduled foreclosure sale, the foreclosure must be delayed while the application is pending.
For borrowers who are less than 90 days delinquent, the program requires a complete loss mitigation application (called a "borrower response package"). The program has a streamlined process for borrowers 90 or more days delinquent.
Before the servicer finalizes the modification, you'll have to successfully complete a trial period plan that usually lasts three or four months. If you make all the trial payments, you'll get a permanent loan modification that will likely waive previous late charges, penalties, and other fees.
Fannie Mae or Freddie Mac must own your loan to qualify for a Flex Modification.
Does Fannie Mae Own My Loan? Does Freddie Mac Own My Loan?
To find out if either Fannie Mae or Freddie Mac owns your loan, call your servicer or use the Fannie Mae and Freddie Mac online loan lookup tools.
Also, you, your home, and your mortgage loan have to meet specific criteria, like:
The requirements to get this type of modification are rather extensive and complicated. So, call your servicer to find out if you qualify and to learn how to apply.
Click here for more information about the Flex Modification program if you have a Fannie Mae loan. If you have a Freddie Mac loan, go here.
If you aren't eligible for a Flex Modification, you might qualify for another modification program, a forbearance, a repayment plan, or another option. Fannie Mae and Freddie Mac offer other types of modifications, including special disaster modifications like:
Extend Mods and Cap and Extend Mods typically go to homeowners who can resume making their full pre-disaster monthly payments after a forbearance but can't get caught up on escrow amounts.
Even if Fannie Mae or Freddie Mac doesn't own your loan, you might qualify for another modification program through your servicer. Servicers and investors usually offer in-house ("proprietary") modifications, as well as forbearance agreements and repayment plans, to help borrowers behind in mortgage payments.
Call your loan servicer to learn about the different options that might be available to you.
If you need help working out a modification or another way to avoid foreclosure with your loan servicer, consider contacting a foreclosure attorney.
A HUD-approved housing counselor is also helpful for information about ways to avoid foreclosure.