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Mortgage Modification Now: What's Available Today?

mortgage-modificationA mortgage modification can help if you have fallen behind on your mortgage payments. It can:

  • restructure your home loan so you pay less each month.
  • reduce the principal balance on your mortgage
  • allow you to refinance, even if your loan's underwater

If you're struggling to keep on top of your mortgage, this is a must-read article.

See today's mortgage rates

Mortgage delinquency: things got better...

A decade or so ago, rates of mortgage delinquencies, defaults and foreclosures were constantly in the headlines. The Great Recession meant many homeowners lost their jobs, had their working hours cut or otherwise lost income. And politicians scrambled to put in place assistance programs to help those people ride out the storm.

Today, you rarely hear about those with problem mortgages. And delinquency (mortgage accounts more than 30 days past due) rates are at their lowest level since at least 1999, according to CoreLogic.

Related: Is Forgiven Mortgage Debt Considered Taxable Income?

...but still aren't perfect

But they were nudging up in fourteen metropolitan areas in October 2019, when the latest CoreLogic Loan Performance Insights report found that 3.7% of all mortgages were delinquent or worse in October 2019. That doesn't sound a lot. But with 52.7 million mortgages current in America, that's an awful lot of homeowners: more than two million individuals and families struggling to make mortgage payments.

In any event, falling behind with your mortgage is a personal disaster, regardless of where you live or how other people are faring. If you're struggling to keep up with your payments, you're likely living with extraordinary stress as you deal with the fear of possibly losing your home. Luckily, help might be at hand through some of those Great-Recession-era programs that have survived. So what might be on offer?

Related: Flex Modification (Replacement for HAMP)

The Flex modification program -- qualifying

Before getting too excited about the Flex modification program you need to know three things.

  • Your lender must participate in the program. Call your mortgage servicer (the company to which you make payments) to check.
  • You must be at least 60 days delinquent with your mortgage and be at risk of defaulting before you can be considered
  • Your mortgage must be owned by Fannie Mae or Freddie Mac

Many homeowners are unaware of who owns their loan. That's because mortgages are routinely traded on secondary markets. And yours may have changed hands without your noticing.

Don't worry. There's an easy way to find out. Because both Fannie and Freddie have lookup tools on their websites intended for homeowners who need to check. So visit Fannie Mae's and Freddie Mac's tools.

The Flex modification program -- benefits

Let's assume you've cleared those hurdles. What help might you get from a Flex mortgage modification?

Don't assume you'll get both benefits -- or either to its maximum extent. But here's what's on offer:

  1. A reduction in your monthly payment of at least 20% -- the goal is that your total homeownership costs (mortgage, property taxes, homeowners insurance, homeowners association fees ...) shouldn't exceed 40% of your monthly income before taxes
  2. A reduction of up to 30% in your mortgage balance -- this time, the goal is to bring your mortgage balance down so that it's between 80% and 100% of the market value of your home. For easy math, let's assume you currently owe $100,000 on your mortgage. You could soon owe $70,000

How are those achieved? There are three main ways, which might be used in combination. And you personally may benefit from one, two or three of them:

  1. The lender simply writes off and forgives part of your balance. It's called "principal forbearance"
  2. You get longer to pay down your mortgage. Suppose you currently have a 30-year loan. That could go up to 40 years, spreading payments thinner and reducing each month's amount due
  3. Your lender cuts your interest rate. If you've had financial issues, you may well have been unable to refinance down to today's low mortgage rates. This achieves something similar

Contact your mortgage servicer for more information.

Related: Can I Modify My Mortgage a Second Time?

Government mortgage modifications

The Flex mortgage modification program is probably the biggest and most famous source of help. But it's far from the only one.

If your mortgage is backed by the government, there's a good chance you could get assistance from mortgage modification programs run by the Federal Housing Administration (FHA-HAMP), Department of Veterans Affairs (VA) and US Department of Agriculture (USDA).

These programs can try to get your monthly payments down to just 31% of your monthly income before taxes. And they use similar methods to those employed by Flex.

HARP refinance replacement (streamline programs)

You may also be eligible to refinance, even if your loan is "underwater" (your mortgage balance is higher than the market value of your home). While the Home Affordable Refinance Program (HARP) expired in December of 2018, its replacement "streamline" programs offer even more.

Fannie Mae's High Loan-to-Value Refinance Option and Freddie Mac's Enhanced Relief Refinance are the new options for homeowners with little home equity, no home equity or negative home equity.

Similar to HARP, you must receive some sort of tangible benefit from the refinance, like:

  • lower monthly principal and interest payment
  • lower interest rate
  • shorter loan term
  • more stable mortgage, such as switching from an adjustable rate mortgage to a fixed-rate loan

Additionally, you must be current on your mortgage payments with no 30-day delinquencies in the most recent six months and no more than one 30-day delinquency in the past 12 months. Fannie Mae borrowers must refinance to a new Fannie Mae loan, and Freddie Mac borrowers must refinance into the Freddie Mac program.

Similar to HARP, the streamline refinance programs have no minimum credit score requirement, maximum debt-to-income ratio or maximum loan-to-value. The program requires no appraisal, although an individual lender may.

Related: Streamline Refi: HARP's Replacement

Other mortgage modification assistance

Many state or local housing agencies operate their own mortgage modification programs. So call the one(s) that work in your area to see if -- and how -- you're in line for help.

By 2019, many of the old "Home Affordable" programs introduced during the Obama era had been scrapped. These include the Home Affordable Unemployment Program and the Home Affordable Foreclosure Alternatives (HAFA) program. The FHA Second Lien program is also defunct.

But don't give up, if you've lost a source of help. There may be others, and many lenders also run proprietary mortgage modification programs for their customers. Talk to your mortgage servicer, check with your housing commission(s) or talk to a housing counselor approved by the US Department of Housing and Urban Development.

Compare mortgage programs now

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