Described below are the loan modification programs created during the financial crisis. These programs have been retired with the recent introduction of Flex Modification which incorporated the key lessons learned during the crisis.
Principal Reduction Modification
The Federal Housing Finance Agency (FHFA) undertook an extensive evaluation to determine whether to implement a Principal Reduction Modification program for seriously delinquent, underwater borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac (the Enterprises). FHFA’s objective was to develop a program that helped targeted borrowers avoid foreclosure while also adhering to FHFA’s mandate to preserve and conserve the assets of the Enterprises.
HAMP
Announced in February 2009, the Making Home Affordable (MHA) program created foreclosure alternatives for homeowners impacted by the financial crisis. The Home Affordable Modification Program (HAMP) was the first and largest program implemented under MHA. HAMP modifications strived to achieve an affordable monthly mortgage payment of no more than 31% of the borrower’s gross monthly income through a combination of interest rate reduction, term extension, and principal forbearance. To be eligible for HAMP, a loan must have been originated on or before January 1, 2009 and borrowers must have submitted an application by December 30, 2016.
Flex Modification replaced Standard and Streamlined Modifications. Servicers were required to implement Flex Modification by October 1, 2017.
Standard Modification
Standard Modification had the following features:
- Capitalize arrearages (such as missed payments)
- Reduction of interest rate to current rate for borrowers with mark-to-market loan-to-value (MTMLTV) above or equal to 80%
- Term extension to 40 years, from the modification date
- Forbear principal to MTMLTV of 115%, with a maximum of 30% of the post modification unpaid principal balance (UPB)
Borrowers needed to submit documentation to be considered for Standard Modification, and they were also required to sign a modification agreement and to make trial payments.
Streamlined Modification
Streamlined Modification used the same terms as Standard Modification and was available to eligible borrowers who were at least 90 days delinquent. Borrowers were proactively offered a modification under this program and did not need to submit documentation, though the borrower did need to sign a modification agreement and make trial payments.
Current Loss Mitigation Solutions
Page last updated: August 25, 2022