Government Announces Streamlined No-Doc Loan Modification Program

Federal Housing Finance Agency (FHFA) recently announced a new loan modification program called Streamlined Modification Initiative (SMI). This program is a new simplified option for homeowners to save homes from default and foreclosure. It’s only for mortgages guaranteed by Fannie Mae and Freddie Mac.

The program which is similar to the Home Affordable Modification Program (HAMP), will provide an easy way for borrowers who are 90 days late on their mortgages to reduce their monthly payments and stay in their homes without having to produce piles of financial and income documents. The HAMP has faced a lot of criticism for the amount of red tape and documentation requirements.

On the other hand the new Home Affordable Refinance Program (also called HARP 2) launched last year was very successful in helping millions of underwater homeowners refinance their house to the current low mortgage rates. HARP is scheduled to expire at the end of 2013.

Here are the highlights of the new program

• SMI will run from July 1, 2013 to August 1, 2015. Homeowners who are late on their mortgages may start seeing a letter from their servicer explaining the new streamlined program.
• To qualify, homeowners have to be delinquent between 90 days and 24 months. Also, their Loan to Value Ratio (LTV) has to be greater than 80%. Underwater borrowers would also qualify. Borrowers who are not yet 90 days late on their mortgage payments can still apply for modification if they feel they will not be able to improve their finances quickly, but they will have to apply for a regular HAMP solution rather than the new SMI. Borrowers that have modified their mortgages two or more times in the past do not qualify for SMI.
• The program aims to modify loans without any income and asset documentation from the homeowners. However, borrowers who do provide these documents may qualify for a lower interest rate.
• Borrowers will initially be eligible for a three month trial period with lower payment. Once they make satisfactory payments for three months, the loan will be permanently modified. Borrowers who miss payments during the trial period may qualify for other foreclosure prevention programs.
• Streamlined modification initiative can also be used to modify loans on second homes and investment properties

If you think you qualify for this program, wait till end of July to hear from your loan servicer. If they don’t reach out to you, you should give them a call. Your loan servicer’s phone number can be found on your monthly mortgage statement.