Part #1 of 2 – Fast Track Loan Mods

Listen to a 57 minute call where Todd grilled me about this

The Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, recently announced a new Fast Track Modification Program designed to help struggling borrowers avoid foreclosure by implementing standardized  lending guidelines for loan modifications.  The result should be a more affordable loan for the homeowner with less struggle and in less time.

You may qualify for a loan modification if all of the following are true:

• Your mortgage loan is owned by Fannie Mae or Freddie Mac
• Your payments are 90 or more days past due
• You occupy the property as your primary residence
• Your home is a one-unit property
• You are not in bankruptcy
• Your mortgage originated prior to January 1, 2008
• Your Debt-to-Income Ratio needs to be at 38% using current pay stub (another obstacle).  See Mortgage Debt-to-income Ratio Information
• You will have to document your hardship with a written hardship letter.

To achieve a more affordable mortgage payment through a loan modification, your loan servicer may:

• extend the term of your loan to as much as 40 years
• reduce your mortgage interest rate for a period of time
• defer payment of part of your principal, or
• offer a combination of all three.
• Principal write-downs and principal forgiveness are prohibited. (This is HUGE)

Modification Options

Servicers may change the terms of a loan to reduce a borrower’s first lien monthly mortgage payment, including taxes, insurance and homeowners association payments, to an amount equal to 38 percent of gross monthly income. The changes in terms may include one or more of the following:

• Adding the accrued interest, escrow advances and costs to the principal balance of the loan, if allowed by state law;
• Extending the length of the mortgage loan as appropriate;
• Reducing the mortgage loan interest rate in increments of 0.125 percent to an interest rate that is not less than 3 percent. If the new rate is set below the market interest rate, after five years it will step up in annual increments to either the original loan interest rate or the market interest rate at the time of the modification, whichever is lower;
• Forbearing (agreeing to wait to be paid) a portion of the principal, which will require the borrower to make a balloon payment when the loan matures, is paid off, or is refinanced.

Post #2 reveals what Fast Track Modifications can cost you

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