Fannie Mae sent a polite reminder to mortgage servicers that the five-year anniversary of the federal government’s Home Affordable Modification Program is right around the corner.
This means that for many homeowners with this modification, their mortgage interest rate will begin to increase.
"When these loans were modified, the interest rate was reduced to a below-market rate (as low as 2%) for a set period of time (generally five years)," writes Laura Haverty on Fannie Mae's Housing Industry Forum. "However, that interest rate will now rise annually by a maximum of 1% per year, until it reaches a “cap” rate which was based on the Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgage loans, rounded to the nearest 0.125%, as of the date that the modification agreement was prepared. "
But the change shouldn't be too severe, Haverty adds. After the interest rate cap is reached, the interest rate remains fixed for the life of the loan, she notes.
Fannie Mae reminded servicers back in January that they are required to implement these payment change notification requirements by April 1, 2014, though they were encouraged to do so right away.