Fannie Mae and Freddie Mac offer loan modifications to eligible troubled borrowers so they can avoid foreclosure and stay in their homes. Your options might include a Flex Modification, which replaces the Home Affordable Modification Program (HAMP) that ended in December 2016, or another type of modification (like a disaster modification), in some cases.
A loan modification is a permanent restructuring of the mortgage where one or more of the terms, like the length of the loan or the interest rate, are changed to provide a more affordable payment.
A modification might be right for you if:
As part of a modification, any past-due amounts are usually added to the outstanding principal balance and then reamortized over the new term. (To learn more about modifications, see How to Get a Mortgage Loan Modification.)
In the past, Fannie Mae and Freddie Mac offered standard and streamlined modifications to people. Those programs, along with HAMP, were replaced on October 1, 2017 with the Flex Modification program. Under this program, the loan servicer takes a series of steps, which might include lowering the interest rate and extending the term of the loan, for example, to reduce the borrower’s monthly payments.
The Flex Modification program offers servicers more flexibility than HAMP did when it comes to evaluating borrowers. With HAMP, lenders could adjust a borrower’s loan terms until the mortgage payment equaled 31% of the borrower’s income. A Flex Modification will, on the other hand, reduce a borrower's monthly mortgage payments by about 20%. Also, while the Flex Modification program uses similar measures as HAMP to modify a loan, the program permits the servicer to consider how delinquent the borrower is, as well as the home’s value, in the process.
Fannie Mae and Freddie Mac also offer various types of modifications after a natural disaster.
If Fannie Mae or Freddie Mac owns your loan, you might be eligible for a Flex Modification. To find out if either of these entities owns your loan, call your servicer or use the Fannie Mae and Freddie Mac online loan lookup tools.
If you want to find out about modification options, call your servicer as soon as possible so you can be evaluated for an alternative to foreclosure that is appropriate for your situation.
If you need help applying for a modification, have questions about the loss mitigation process, or are having problems dealing with your servicer, consider talking to a foreclosure attorney or a HUD-approved housing counselor.
You should, however, avoid loan modification companies.