Fannie Mae and Freddie Mac are gearing up for a new streamline refinancing program -- a program which tosses out traditional underwriting requirements in what may be a last-ditch effort to save troubled homeowners.
Back in March, the Federal Housing Finance Agency announced that starting July 1st, borrowers facing foreclosure would be able to quickly and easily refinance home loans. The program, however, is not open to everyone. Instead you have to be at least 90 days late.
"The new Streamlined Modification Initiative eliminates the administrative barriers associated
with document collection and evaluation," said FHFA back in March.
And wow, they were not kidding.
First, under the new plan loans can be extended to as long as 40 years.
Second, homeowners must be 90 to 720 days delinquent. That's right. If a borrower has been behind for as long as nearly TWO YEARS they still may qualify for refinancing.
Third, you say you've tried a mortgage modification before and failed? No worries. Under the Streamline Refinance Initiative you can try again.
Fourth, the loan must be at least a year old. The math created by this requirement is strange: In theory you could have a loan which is 12 months old but no payments have been made since a year is barely half of 720 days.
Fifth, you can get refinancing even if your home is worth less than the outstanding loan debt -- the allowable loan-to-value ratio under the initiative must be at least 80 percent. This is the loan's gross unpaid principal balance divided by the property's current value.
Strangest of all, borrowers need not apply for such financing. Instead, what happens is that troubled borrowers receive a solicitation letter from their loan servicer which says, "based on our estimate of your home’s value, you’re approved for a Trial Period Plan to modify your mortgage payment." All borrowers have to do is make three monthly payments and their loan is modified -- all without the bother, cost or irritation of a loan application or appraisal.
Why is FHFA forcing Fannie Mae and Freddie Mac to make such modifications? The idea is plainly to prevent more foreclosures and thus a reduction in home values.
For borrowers the obvious response to the solicitation letter is yes, absolutely, sure. This program is a gift, especially now when mortgage rates have been rising. If you get a solicitation letter, grab it. If you don't get a solicitation letter and think you qualify for the program, contact your loan servicer immediately.