FHFA Announces New Streamlined Loan Modification Initiative
Last year we posted several blog posts that covered the wave of class action lawsuits relating to the United States Treasury’s Home Affordable Modification Program (“HAMP”), including the Fletcher litigation against IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB) where Abbey Spanier is lead counsel. See some of our posts located here, here and here.
HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans. Despite the government’s noble intentions, HAMP has been criticized and viewed by many people as unsuccessful. One of the many problems with the HAMP was that mortgage service providers often unjustifiably denied requests for permanent modifications by losing paperwork, including documents showing borrowers financial hardship.
A few weeks ago, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac will offer a new, simplified loan modification initiative to minimize losses and to help troubled borrowers avoid foreclosure and stay in their homes. Under the new initiative, many borrowers who are at least 90 days delinquent will be sent an offer that includes a Trial Period Plan specifying the dollar amount of their new mortgage payment based upon a fixed interest rate, extending the payment terms to 40 years, and providing principal forbearance for certain underwater borrowers. Only those borrowers with loans more than 12 months old with a mark-to market loan-to-value ratio greater than 80 percent and who have not had two or more previous loan modifications will be solicited for participation in the program.
A key component of the new procedure is that borrowers will not be required to document their hardship or financial situations to receive a permanent modification. Under the program, after the borrower makes on-time payments during the three month trial period and meets necessary criteria, the borrower will receive a permanent mortgage modification. In a press release dated March 27, 2013, the FHFA explained that, “[t]he new Streamlined Modification Initiative eliminates the administrative barriers associated with document collection and evaluation. Eligible borrowers must demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified.”
The new streamlined loan modification program is only available to those homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac. The program will commence on July 1, 2013 and will expire on August 1, 2015. If you have questions about the new initiative, you can find some helpful answers provided by the FHFA here.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.