Fannie Mae and Freddie Mac on Wednesday announced an update to one of their loss-mitigation solutions known as Flex Modification. The government-sponsored enterprises (GSEs) are now targeting a 20% reduction in principal and interest (P&I) payments to keep borrowers facing permanent financial stress in their homes. 

“The Enterprises have completed over half a million modifications through their Flex Modification offerings since they were implemented in 2017,” Federal Housing Finance Agency (FHFA) Director Sandra Thompson said in a prepared statement. 

“The Flex Modification enhancements will support sustainable homeownership by allowing more eligible borrowers facing hardships to remain in their homes by achieving a meaningful mortgage payment reduction in the current environment of elevated interest rates and home prices,” Thompson added.   

Flex Modification guarantees home retention for borrowers who face permanent hardships and can’t afford their mortgage payments.

Through the programs, Fannie and Freddie reduce interest rates (if the borrower is eligible), extend mortgage terms and forbear principal (for borrowers with mark-to-market loan-to-value ratios greater than 50%) so the monthly mortgage payment can meet a borrower’s financial conditions. 

In a lender letter, Fannie Mae said that the updates expand eligibility by revising the mark-to-market loan-to-value-based requirements. They also provide more equitable payment reductions by applying the terms incrementally and targeting a 20% P&I payment reduction.

Meanwhile, in a bulletin, Freddie Mac explained that “the steps to determining the terms of the Freddie Mac Flex Modification have been reordered and will be incrementally applied until a 20% principal and interest payment reduction target has been achieved or the steps have been exhausted.” 

Freddie Mac also mentioned the elimination of a requirement to target a 40% post-modification housing expense-to-income ratio for mortgages that are less than 90 days delinquent.  

The GSEs are encouraging servicers to begin implementing the changes in November, but the updates will not be mandatory until Dec. 1, 2024.

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