July 1, 2013 marked the implementation date for mortgage servicers to begin offering a new program to help borrowers avoid foreclosure. Under the new Streamlined Modification program, borrowers who are at least 90 days delinquent will be given an explicit trial modification offer that includes the full details of their trial period plan payment. They can begin paying under this plan immediately without documenting their hardship, income, or financial circumstances. After making the new reduced payments for a period of three months, the modification becomes permanent. Reduced payments result from the combination of extending the term on the loan and potentially a reduced rate and partial loan balance forbearance.
Our number one goal in Credit Portfolio Management is simple: keep more homeowners in their homes, which also helps improve the quality and value of neighborhoods, reduces the number of foreclosures, and returns greater value to taxpayers. For homeowners and communities in need, Fannie Mae's loss mitigation solutions have helped 1.3 million borrowers avoid foreclosure since 2009. Importantly, Fannie Mae has instituted safeguards against fraud and strategic defaults in conjunction with the streamlined modifications.
Despite our efforts to collect documentation and provide modifications, we found that a significant portion of our loans that became 90 days delinquent were still ending up in foreclosure. Our research showed that providing income documentation was a significant barrier to getting a homeowner into a foreclosure prevention alternative. As many as one in three borrowers in the application and modification process said that providing all of the servicer-required documents, including income documentation, was a major obstacle.
And even for those who did not view income documentation as a significant hurdle, many found the application and documentation process to be overly complex. Our research also showed a significant gap between what borrowers thought was a completed documentation package and what the actual servicer requirements were for a completed documentation package. In one survey, more than half of homeowners believed they submitted all the necessary documentation compared to approximately 5 percent validated by the servicer.
For homeowners struggling to avoid foreclosure and make their way through the application process to pursue a modification, a streamlined modification is an effective solution.
Homeowners who reach out earlier for assistance will have more options and a higher likelihood of success, so we always advise borrowers to keep in close contact with their servicer. Other modification options that require full documentation, such as the Home Affordable Modification Program (HAMP), may offer a lower monthly payment, and borrowers are advised to work with their servicer to determine if additional savings are possible by documenting their financial situation.
When the Streamlined Modification program was first announced in March of this year, Fannie Mae immediately began working with servicers to offer the program earlier than July 1, where possible. Servicers using our loss mitigation technology, Servicing Management Default Underwriter™ (SMDU™), were able to offer streamlined modifications immediately.
As of July 31, 2013, all servicers are offering streamlined modifications on Fannie Mae-owned loans which resulted in more than 11,000 borrowers who are now in the initial 3-month trial payment period. And as many as 30,000 homeowners were pre-qualified for the program using SMDU.
Now that all servicers are offering this product to eligible homeowners, we envision that many more families and neighborhoods will be on the road to recovery.
For more information on our Streamlined Modification program visit https://www.fanniemae.com/content/announcement/svc1305.pdf
Vice President for Credit Portfolio Strategy
September 11, 2013
The views expressed in these articles reflect the personal views of the authors, and do not necessarily reflect the views or policies of any other person, including Fannie Mae or its Conservator. Any figures or estimates included in an article are solely the responsibility of the author.