The Federal Housing Finance Agency (FHFA) will be launching a new, streamlined and easily accessible mortgage loan modification program starting July 1. Aimed at underwater borrowers as a better opportunity to stay in their homes, the Streamlined Modification Initiative will allow Freddie Mac and Fannie Mae borrowers to better maintain payments on their mortgages. By allowing three trial-period mortgage payments, the borrower establishes that they’re able to pay and should a hardship arise and a mortgage payment is missed, income is then documented and the loan is automatically modified to allow for potential financial difficulty.
“This new option gives delinquent borrowers another path to avoid foreclosure. We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings,” said FHFA Acting Director Edward J. DeMarco.
An apparent 30 percent average savings is what the FHFA is citing as the primary benefit to borrowers. By not forcing borrowers to actually document hardship (the new system does the work for them), critics are claiming the FHFA is merely providing a stop-gap for delinquent borrowers. Back in May, Edward Pinto of the American Enterprise Institute stated to Investors.com: "The government keeps moving the goal posts to make it easier and easier to qualify in order to pump up the success rate and to pump up the numbers.”
The FHA Streamline Initiative makes three major changes to their existing system. Employment verification is no longer required with an FHA Streamline Refinance. Income verification is also no longer required. The FHFA will also use the Streamline Modification Initiative to monitor credit score, taking that out of borrower’s hands, as well.
The Mortgage Reports’ Dan Green puts it together as “There's no need for a home appraisal, either, so when you put it all together, you can be (1) out-of-work, (2) without income, (3) carry a terrible credit rating and (4) have no home equity. Yet, you can still be approved for an FHA Streamline Refinance.”
After previous programs and initiatives put forth by the FHFA failed to provide assistance to borrowers, eliminating the use for proof of employment, having terrible credit and have zero home equity still allows borrowers to qualify for a Streamlined Refinance. The Mortgage Reports has been keeping up to date with whatever seemingly minimal “requirements” the FHA is currently requiring. The FHFA initially announced plans for this new program back in March.