New ‘Streamlined Modification Initiative’ Will Reduce Mortgage Payments

If you are at least 90 days behind on your payments, you may be able to take advantage of this new program.

by Myles Biggs

Streamlined Modification Initiative from the FHFA

A new program for struggling home owners, known as the Streamlined Modification Initiative, went into effect earlier this week. Through this new, Federal Housing Finance Agency (FHFA) backed program, home owners that are at least 90 days behind on their loans will begin receiving offers from lenders - allowing them to lower their payments on mortgages backed by Fannie Mae and Freddie Mac.

These lower monthly payments will be achieved by both extending the loan term and lowering the interest rate. For example, if a current home owner has a $250,000 loan with a 30-year term and an interest rate of 6%, than their monthly payment would be $1,499. By extending this loan to a 40-year term and lowering the interest rate to 4.5%, the monthly payment would become $1,124 – a savings of $375 per month.

 This new effort is “streamlined” because it eliminates the filing of financial paperwork. Instead of mountains of paperwork and other financial hurdles, home owners will simply have to meet their new payments for a three consecutive month trial period. After three months, the new monthly payment then becomes permanent.

 While this is an opportunity for many home owners with high-rate loans to refinance, the FHFA has not announced how many struggling home owners will be able to receive these loan modifications.

In addition to being at least 90 days behind on payments, the Streamlined Modification Initiative comes with other stipulations; the loan must be at least one year old, borrowers cannot be more than two years behind on their payments and the principal balance must be 80% or more of the value of the home. The FHFA plans to run this initiative through December 2015.

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