Flex Modification Program: A Guide

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If you’re having trouble making your monthly mortgage payments, the Flex Modification program could help you lower your monthly payment, get a longer repayment period, and maybe even a lower interest rate. Here’s what you need to know about the Fannie Mae and Freddie Mac Flex Modification program and if it’s the right decision for you to apply.

What is the Flex Modification program?

The Flex Modification Program (FMP) is a conventional loan modification program designed to help homeowners experiencing long-term or permanent financial difficulties. It can be used as a way to avoid foreclosure.

If you qualify, you may be able to extend your loan term to 40 years and reduce your principal and interest payments by up to 20%. In some cases, the lender can also lower the interest rate of the loan.

The FMP replaced the Home Affordable Modification (HAMP), Standard Modification and Streamlined Modification program in 2016, combining them all into one program for simplicity and flexibility.

The FMP is beneficial for both borrowers and lenders. The borrower can stay at home, while the lender can save money by not going through the foreclosure process.

How does Flex Modification work?

If you are behind on your mortgage payments, you can apply for the Flex Modification program through your lender. If you are between 90 and 105 days late, your lender is required by Fannie Mae and Freddie Mac to review your situation to determine if you qualify.

If you qualify, the lender may take one or more of the following actions:

  • Reduce your monthly payments by up to 20%
  • Add overdue amounts, including interest, to your principal balance, so not everything is owed upfront
  • Extend your repayment term up to 40 years
  • Lower your interest rate
  • Impose a forbearance on part of your capital, which will not bear interest and will be payable when the loan matures or if you repay it in advance

Your lender will review your situation to determine what action to take. Once this decision is made, you will enter a trial period, during which you will make the payments defined by the program for a few months. If you end this period, the lender will revert your loan back to the current status and your loan modification will become permanent.

Why should you consider a flex modification?

FMP can be a great option for someone who is behind on their mortgage payments due to financial hardship and doesn’t anticipate a change in their situation. This long-term solution can help you avoid foreclosure, which can damage your credit and uproot your life, forcing you to find another place to live.

Once the trial period is over, a Flex modification will also revert your loan back to its current status, which will not negate the fact that you have been in arrears, but it can prevent further damage to your credit score.

If the arrangement works within your budget, you will be able to stay in your home with less financial strain.

Who is eligible for the Flex Modification program?

Ultimately, your lender determines if you qualify for a flex modification. To begin with, your loan must be owned or guaranteed by Fannie Mae or Freddie Mac, which means it must be a conventional loan. If you have a government guaranteed loan like an FHA, VA, or USDA loan, these programs have separate loan modification options that you can follow.

Some of the eligibility requirements for the program include:

  • Your mortgage is at least a year old.
  • Your loan is a first mortgage, which means your lender will be the first to be paid off if you default and the foreclosed home is sold.
  • If the loan is less than 60 days outstanding or past due, it must relate to your primary residence. If it’s a second home or an investment property, you must be 60 days or more late.
  • Your lender has determined that your loan is in impending default, which means they think you are no longer able to pay, even if the loan is less than 60 days past or past due.

What is considered a hardship for a loan modification?

Under normal circumstances, lenders may accept any of the following forms of financial hardship:

  • Unemployment
  • Reduced income due to circumstances beyond your control
  • Increase in housing expenses due to circumstances beyond your control
  • Natural or man-made disasters that have affected your property or workplace
  • Long-term or permanent disability
  • Serious illness of the borrower, co-borrower or dependent family member
  • Divorce or legal separation
  • Separation of borrowers unrelated to marriage, civil union or similar domestic partnership
  • Death of a borrower or of the main or secondary employee
  • Job relocation of more than 50 miles
  • Other difficulties described by the borrower

The Federal Housing Finance Agency has extended these conditions to also include homeowners who are in ongoing financial hardship related to the pandemic.

Regardless of the type of financial hardship you are facing, you will need to provide documents during the application process to prove your eligibility.

How to request a Flex change

If your lender has not already contacted you about Flex Modification, contact them and ask to receive a borrower response package. You will need to complete and sign the Borrower Assistance Form and IRS Form 4506-T or Form 4506T-EZ, which allow the lender to request a transcript of your tax return. You will also need to provide proof of income and your financial hardship.

Submit the package to your lender once you have completed it, and they will review your request.

Note that if you are 90 days or more late, the lender uses a streamlined process, which does not require you to complete the file.

Other ways to get help with your mortgage payments

If your financial difficulties are temporary, the Flex Modification program may not be right for you. Here are some alternatives to consider:

  • Abstention: Your lender may offer a forbearance, which suspends your monthly payments for a period set by the lender. However, that doesn’t erase what you owe, so you’ll have to catch up on those payments later.
  • Internal modification: Many mortgage lenders have created their own internal modification programs with different terms than the FMP. Contact your lender to find out if they have a program that might be better suited.
  • Charitable organizations: Some charities offer housing assistance, although the eligibility requirements and extent of assistance may vary from organization to organization. Examples include the United Way, The Salvation Army, Catholic Charities USA, and the Marin County St. Vincent de Paul Society.
  • Friends and family: Depending on your situation, you may be able to seek help from people in your circle of friends and family. Just make sure you understand the potential impact such a request could have on your relationship, especially if you can’t pay them back.

Whatever you do, take the time to research and compare all of your options to find the one that best suits your situation and needs.

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