Servicers dealing with loans guaranteed or owned by Fannie Mae and Freddie Mac will soon be required to offer eligible distressed borrowers ways to lower their monthly payments if the homeowner shows a willingness and ability to make three on-time trial payments, the Federal Housing Finance Agency said.
The program, which begins July 1, applies to borrowers with GSE loans that are 90 days or more past due.
The idea behind what the FHFA is calling the Streamlined Modification Initiative is to encourage servicers to handle delinquencies earlier, minimizing losses to the GSEs and taxpayers, while cutting back some of the red tape that slows down the traditional approval process.
All eligible borrowers have to do is make three on-time trial payments, the FHFA said. Once those payments are made, the loan modification takes permanent effect.
Previously required document collection practices and extensive evaluations are no longer required, giving servicers the ability to execute the trial periods faster.
Even though proof of distress is no longer initially required, the FHFA says homeowners should still work with their servicers to document income levels and financial hardship since those records could mean additional monthly savings.
The program begins in July and expires Aug. 1, 2015.
"The Streamlined Modification Initiative adds to the suite of home retention tools offered by Fannie Mae and Freddie Mac," said FHFA Acting Director Edward J. DeMarco. "This new option gives delinquent borrowers another path to avoid foreclosure. We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings."
The initiative builds on the guidelines established in the Servicing Alignment Initiative by encouraging servicers to save homes as soon as borrowers show serious signs of distress.
The FHFA says Fannie Mae and Freddie Mac have executed 2.7 million foreclosure prevention actions and 1.3 million loan mods since the GSEs were placed in conservatorship back in 2008.
The GSEs lauded the new program Tuesday.
"We believe that this new option will help homeowners avoid foreclosure by creating a sustainable monthly payment in a simple, straightforward process," said Leslie Peeler, senior vice president of Fannie Mae’s National Servicing Organization.
Tracy Mooney, senior vice president of servicing and REO with Freddie Mac, added, "The streamlined modification will open a new gateway to mortgage relief for many of America’s struggling borrowers."
Still, Peeler said the GSEs will be using all tools available to screen for strategic defaulters.