In April 2016, the FHFA (Federal Housing Finance Agency) announced a new principal reduction modification program for underwater mortgage borrowers who are behind on their payments. The program is designed to help delinquent borrowers become current on their mortgage, reduce their mortgage payment and avoid foreclosure. Borrowers who are eligible for the Principal Reduction Modification Program will be notified in writing by their mortgage services (the company to which you make your mortgage payment) by October 15, 2016. Key features of the program include:
The amount of the mortgage reduction (forbeared or forgiven) depends on multiple factors including the value of the property and the outstanding mortgage balance plus any past due amounts. Based on program guidelines, the mortgage balance is typically reduced to a level such that the new loan-to-value (LTV) ratio equals 115%. LTV ratio equals the ratio of the mortgage balance to the property value. For example, a property valued at $100,000 with a $115,000 mortgage amount has an LTV of 115% ($115,000 (mortgage amount) / $100,000 (property value) = 115%). For borrowers that are significantly underwater (the mortgage balance greatly exceeds the property value) the program allows for a maximum principal reduction of 30%.
Mortgage servicers have until July 15, 2016 to notify borrowers who are potentially eligible for the program about a Streamlined Modification, which provides borrowers relief while their eligibility is reviewed and the program is implemented. The Streamlined Modification stops foreclosure but does not guarantee principal forgiveness.
If the borrower is approved as eligible for the Principal Reduction Modification Program, then the amount of principal forbearance provided under the Streamlined Modification is forgiven. If the borrower is determined to be ineligible for the program, then he or she will continue to benefit from the payment relief provided by the Streamlined Modification due to a lower interest rate, longer mortgage term and principal forbearance but will not receive any principal forgiveness.
Mortgage servicers have until October 15, 2016 to contact borrowers regarding the FHFA Principal Reduction Modification Program and until December 31, 2016 to inform them that they are eligible for the principal forgiveness component of the program.
Use the FREEandCLEAR Lender Directory to search for twenty-five mortgage programs including multiple refinance assistance programs that are currently available to borrowers.
Mortgages must meet certain requirements to to be eligible for the Principal Reduction Modification Program including the following:
Eligible borrowers who enter into a modification with a first trial payment date between May 1, 2016 and December 1, 2016 are eligible to have their principal forbearance converted to forgiveness.
Borrowers should contact their mortgage servicer to determine if they are eligible for the program. Borrowers can also contact their local HUD-approved housing agency to learn more about the FHFA Principal Reduction Modification Program and other mortgage assistance programs.
Related FREEandCLEAR Resources
FHFA Principal Reduction Program: https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Principal-Reduction-Modification.aspx