If you’re having a hard time making your monthly mortgage payments, the Flex Modification program might be able to help you reduce your monthly payment, get a longer repayment period and possibly even a lower interest rate. Here’s what you should know about the Fannie Mae and Freddie Mac Flex Modification program and whether it’s the right move 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 who are experiencing long-term or permanent financial hardship. It can be used as a way to avoid foreclosure.
If you qualify, you might be able to have your loan term extended to 40 years and your principal-and-interest payment reduced by up to 20 percent. In some cases, the lender might also lower the interest rate on the loan.
The FMP replaced the Home Affordable Modification program (HAMP), Standard Modification and Streamlined Modification in 2016, combining them all into one program for simplicity and flexibility.
The FMP is beneficial to both borrowers and lenders. The borrower is able to remain in their home, while the lender can save money by not going through the foreclosure process.
How does Flex Modification work?
If you’re behind on your mortgage payments, you can apply for the Flex Modification program through your lender. If you’re between 90 and 105 days delinquent, though, your lender is required by Fannie Mae and Freddie Mac to review your situation to determine if you qualify.
If you’re eligible, the lender might take one or more of the following actions:
- Reduce your monthly payment by as much as 20 percent
- Add past-due amounts, including interest, to your principal balance, so it’s not all due upfront
- Extend your repayment term to up to 40 years
- Lower your interest rate
- Place a forbearance on a portion of your principal, which won’t accrue interest and will be due when the loan matures or you pay it off early
Your lender will review your situation to determine which steps to take. Once that decision is made, you’ll enter a trial period, where you’ll make payments as set by the program for a few months. If you complete that period, the lender will bring your loan to current status and your loan modification will become permanent.
Why should you consider a Flex Modification?
The FMP can be an excellent 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 you complete the trial period, a Flex Modification also brings your loan to current status, which won’t negate the fact that you’ve been delinquent, but it can stop further damage to your credit score.
If the arrangement works with your budget, you’ll be able to remain in your home with less financial strain.
Who qualifies for the Flex Modification program?
Ultimately, your lender determines whether you’re eligible for a Flex Modification. For starters, 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-backed loan like an FHA, VA or USDA loan, those programs have separate loan modification options you can pursue.
Some of the eligibility requirements for the program include:
- Your mortgage is at least one year old.
- Your loan is a first mortgage, which means that your lender will be the first to be repaid if you default and the foreclosed home is sold.
- If the loan is current or past due by fewer than 60 days, it must be for your primary residence. If it’s a second home or investment property, you must be delinquent by 60 days or more.
- Your lender has determined your loan is in imminent default, which means that the lender believes you’re no longer able to afford your payment, even if the loan is current or fewer than 60 days past due.
What is considered a hardship for a loan modification?
Under normal circumstances, lenders can accept any of the following forms of financial hardship:
- Reduction of income due to circumstances outside of your control
- Increase in housing expenses due to circumstances outside of your control
- Natural or man-made disasters that impacted your property or place of employment
- Long-term or permanent disability
- Serious illness of the borrower, co-borrower or a dependent family member
- Divorce or legal separation
- Separation of borrowers unrelated to marriage, civil union or similar domestic partnership
- Death of a borrower or the primary or secondary wage earner
- Employment relocation of more than 50 miles
- Other hardships as described by the borrower
The Federal Housing Finance Agency expanded these terms to include homeowners who have permanent financial hardship related to the pandemic, as well.
Regardless of the type of financial hardship you’re dealing with, you’ll need to provide documentation during the application process to prove eligibility.
How to apply for a Flex Modification
If your lender hasn’t already reached out to you about Flex Modification, reach out and ask to be sent a borrower response package. You’ll need to complete and sign the borrower assistance form and Form 4506-T or Form 4506T-EZ from the IRS, which allows the lender to request a transcript of your tax return. You’ll also need to provide proof of income and of your financial hardship.
Submit the package to your lender once you’ve completed it, and it will consider your request.
Note that if you’re 90 days late or more, the lender uses a streamlined process, which doesn’t require that you complete the package.
Other ways to get help with your mortgage payments
If your financial hardship is temporary, the Flex Modification program might not be the right fit for you. Here are some alternatives to consider:
- Forbearance: Your lender might offer forbearance, which pauses your monthly payments for a period set by the lender. This doesn’t erase what you owe, though, so you’ll need to get caught up on those payments later.
- In-house modification: Many mortgage lenders have created their own in-house modification programs that come with different terms than the FMP. Contact your lender to find out if it offers a program that could be a better fit.
- Charitable organizations: Some charities provide housing assistance, though eligibility requirements and the extent of the assistance can vary from organization to organization. Examples include The United Way, The Salvation Army, Catholic Charities USA and St. Vincent de Paul Society of Marin County.
- Friends and family: Depending on your situation, you might be able to ask for help from people in your circle of friends and family members. Just be sure to understand the potential impact such a request could have on your relationship, especially if you can’t pay them back.
Whatever you do, take your time to research and compare all of your options to come up with the one that’s best suited to your situation and needs.