Bankruptcy

The Flex Modification Program for Homeowners: What Struggling Borrowers Need to Know

By Amy Loftsgordon, Attorney
Homeowners who are struggling to pay their mortgage bills might qualify for a loan modification under the Flex Modification program.

Many home mortgage modifications used to happen under the federal government’s Home Affordable Modification Program (HAMP). But, unfortunately, that program stopped taking applications at the end of 2016. The good news is that you’re not necessarily out of luck if you can’t afford to make your mortgage payments.

To replace HAMP, Fannie Mae and Freddie Mac developed the Flex Modification program. If you qualify for mortgage relief under this program, your monthly payment will go down by around 20%.

Who—or What—Are Fannie Mae and Freddie Mac?

The Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, known as Freddie Mac, are government-sponsored enterprises (GSEs) that own or back many mortgages in the United States. These GSEs provide “liquidity, stability, and affordability to the mortgage market.”

Here’s how Fannie Mae and Freddie Mac fit into the mortgage market:

A borrower typically gets a home loan directly from a bank or mortgage company. In most cases, though, the original lender won’t hold on to the loan. Lenders usually sell the loans they originate to other banks or investors—like Fannie Mae and Freddie Mac—on what’s called the secondary mortgage market. After buying loans from banks and mortgage companies, Fannie Mae and Freddie Mac either hold the mortgages in their portfolios or package them into mortgage-backed securities, which they sell to private investors. Fannie Mae and Freddie Mac often guarantee the loans that they sell to investors. (Basically, Fannie Mae and Freddie Mac guarantee that an investor gets paid on the loan even if the borrower defaults.)

Because Fannie Mae and Freddie Mac continually buy mortgages from banks and mortgage companies, lenders have a steady source of cash to keep making loans to new borrowers.

How Flex Modifications Work

With a loan modification, the lender agrees to change the borrower’s loan terms, which lowers the monthly payment to a more affordable amount. A Flex Modification is supposed to reduce an eligible borrower’s mortgage payment by about 20%. The servicer (the company you make your mortgage payments to) reduces the payment by taking one or more of the following steps:

  • capitalizing any overdue amounts (adding past-due amounts to the outstanding loan amount)
  • lowering the interest rate
  • extending the term of the loan, or
  • forbearing some of the principal balance.

In order to qualify for a Flex Modification, Fannie Mae or Freddie Mac must own your loan. You—and the property—must also meet certain eligibility criteria, including that:

  • the loan must be a conventional first mortgage and
  • you must have taken out your mortgage at least 12 months before being evaluated for a Flex Modification.

To apply for a Flex Modification, contact your mortgage servicer. Under Fannie Mae and Freddie Mac guidelines, servicers are not required to offer Flex Modifications until October 1, 2017. But many servicers have implemented the program early. Also, if your servicer doesn’t offer Flex Modifications yet or you aren’t eligible, you might qualify for another modification program through your servicer.

Before getting a permanent Flex Modification, a borrower has to complete a trial period plan that typically lasts three months. If the borrower makes all trial payments, a permanent modification, which waives prior late charges, penalties, and other fees, goes into place.

Getting Help

If you’re having trouble making your mortgage payments and need help negotiating a way to avoid foreclosure, consider contacting a foreclosure attorney or a HUD-approved housing counselor.

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