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13. Federal Loan Modification Programs: Conventional Loans

This chapter covers non-FHA or VA federal loan modification programs. Many of these are backed by government-supported lenders Fannie Mae or Freddie Mac. FHA and VA programs are covered in the previous chapter of this guide.

Understanding Federal Loan Modification Programs

There are a variety of mortgage loan modification programs available at the federal level, to assist homeowners that are looking to have their mortgages modified. Guidelines are outlined here, and borrowers looking to find more specific information should contact either any of the agencies listed here, or their mortgage professional.

Making Home Affordable

This plan, created by the U.S. Treasury Department under the Obama administration, has both refinancing and mortgage loan modification programs. It offers borrowers the opportunity to work with their lenders, should they find themselves unable to make their payments, due to either a rate increase, or a change in employment.

Borrowers should first explore whether they can qualify for the mortgage refinancing program before pursuing a loan modification, especially if they are current on their payments.

To be eligible for the refinancing program, mortgages must have been securitized by either Fannie Mae or Freddie Mac. This excludes FHA and VA loans, as well as some loans that were taken out under subprime programs. To find out if they have a Fannie Mae or Freddie Mac mortgage, borrowers can visit these web sites.

Mortgages eligible for the loan modification program of Making Home Affordable are of the conventional type, meaning that they are neither FHA or VA, but they need not be backed by Fannie Mae or Freddie Mac.

Specifics of the modification component are:

The borrower must live in the property, which may be a one- to four-unit building. The balance on the mortgage must be less than $729,750 for a one-unit property. Balances can be higher for multi-unit properties. The loan must have been taken out before January 1,2009. The borrower must currently have a mortgage payment that is over 31 percent of their gross monthly income, and this includes taxes, insurance, and association fees, if there are any. The borrower must be able to demonstrate their inability to make their mortgage payment, be it either from a payment increase, or from some type of income loss. While this program may be of benefit to many borrowers, participation for many lenders is optional, and some are declining to participate. The lenders that are participating though are often overwhelmed with the number of homeowners looking to get modifications.

More information on this program can be found at: http://www.makinghomeaffordable.gov

FHFA

This is the Federal Housing Finance Agency. It is a merger of the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board (FHFB) and the U.S. Department of Housing and Urban Development (HUD) government-sponsored enterprise (GSE) mission team. The modification program of FHFA was designed for the highest risk borrower, who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed for bankruptcy. The goal of this program is to get the borrower into a payment, including taxes and insurance, that is no more than 38 percent of the gross income of the borrower.

Their website is http://www.fhfa.gov