Florida borrowers two or more years late on their mortgage payments could get another chance to save their homes following a change in loan modification rules by the Federal Housing Finance Agency.
Federal mortgage backers Fannie Mae and Freddie Mac announced the elimination of an eligibility cap that forbid loan modifications to people with delinquencies of 720 days or more.
The change was made to the “streamlined modification” program, which was created in 2013 and billed as a more automatic route to lower mortgage payments because no application or exchange of paperwork is required.
It’s estimated that nearly half of borrowers nationwide who are ineligible because of the 720-day cap, would otherwise be able to get a loan modification through the program, according to the Federal Housing Finance Agency.
Lenders must comply with the cap elimination by April 1, 2015, but are being encouraged to make the change immediately. Borrowers who were previously denied a streamlined modification because they were more than two years late on payments must be reevaluated, according to letters sent to lenders and mortgage servicers Oct. 1.
“We’ve had multiple clients receive approvals under this program,” said Paul Baltrun, director of corporate development for the Law Office of Paul A. Krasker in West Palm Beach. “It’s very little paperwork, mostly just phone conversations with the lender, and the turn time is quicker.”
The streamlined modification program was developed because of consistent complaints from borrowers that banks repeatedly lose loan modification paperwork in a bureaucratic process that can take years to complete. Banks have also said obtaining the correct employment and payment documents from borrowers can be a hurdle in completing a modification.
Under the program, lenders send contracts to borrowers with new payment amounts. The modification could include a fixed interest rate, an extension of the loan to 40 years, and possibly deferring a portion of the debt owed to the end of the loan so it’s not included in current payment calculations.
Also, borrowers are encouraged to apply for other loan modification plans, such as the Home Affordable Modification Program, which could offer a better deal.
If the borrower agrees and makes three on-time payments, the modification becomes permanent.
Baltrun said it’s hard to gauge how many people the change will affect. Although the worst of the foreclosure crisis is over, he said a significant number of homeowners are still looking for modifications because they have lost jobs, or have used up their savings trying to stay in their home.
“I think it will help a small number of people in specific circumstances,” said Baltrun, who believes removing the cap is a good change. “Why would someone who is 721 days late be declined when someone who is 719 days late is approved?
Other eligibility requirements for the streamlined modification include homeowners must be at least 90 days late on their mortgage and can’t have more than 20 percent equity in their home.
About 3 percent of Florida homeowners with mortgages were 90 days late or more on payments during the second quarter of this year, according to the Mortgage Bankers Association. Nearly 10 percent were either 90 days delinquent, or in foreclosure.
While that’s still the second highest foreclosure and serious delinquency rate in the nation behind New Jersey, it’s an improvement from where Florida was at the end of 2011 when 18 percent of mortgages were in the same position.
Streamlining modifications is increasingly important in Florida where foreclosure courts are moving cases more quickly through the system. That means less time for negotiating with the bank before a final foreclosure judgment is issued.
“You can’t even keep people in their homes very long anymore,” said Deerfield Beach-based attorney Bonnie Lynn Canty, who defends foreclosures. “Used to be four years out before you were looking at a (foreclosure) sale date. Now, it’s at the most two years.”
Source: Palm Beach Post, Bloomberg BusinessWeek