The Federal Housing Finance Agency (FHFA) recently announced a loan modification program that it is calling the “ FHFA Streamlined Loan Modification Program” and the plan goes into effect December 15, 2008.
To qualify for the FHFA Loan Modification Program, borrowers must:
- Have a loan owned or guaranteed by Fannie Mae or Freddie Mac.
- Owe 90% or more than the home is worth.
- Be 90 days or more behind on payments.
- Demonstrate financial hardship.
- Not have filed bankruptcy.
- Presently occupy the home.
Possible remedies under the FHFA Loan Modification Program include:
- Interest rate reduction (but not below 3%).
- Loan term extended from 30 to 40 years.
- Deferred principal.
Note that principal reduction is not among the possible remedies.
Some interesting insights into the program according to Kathleen Pender at The San Francisco Chronicle:
Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.
“This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”
The government is offering loan servicers $800 for every homeowner they get into the plan.
Schiff predicts that loan agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan.”
To prevent fraud, the government says a borrower “must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification.”