GSEs Revise Flex Modification Policies

The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac (the GSEs) will enhance their Flex Modification policies to allow more borrowers facing longer-term hardships to achieve meaningful payment reductions. The updated Flex Modification policies will promote sustainable homeownership and the safety and soundness of the GSEs. These enhanced policies will become effective on December 1, 2024.

“The Enterprises have completed over half-a-million modifications through their Flex Modification offerings since they were implemented in 2017, helping struggling borrowers throughout the country,” said FHFA Director Sandra L. Thompson. “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.”

Flex Modification is the GSEs’ loan modification offering that provides home retention solutions for eligible borrowers facing a permanent hardship who can no longer afford to make their regular monthly mortgage payments.

Flex Modification policies lower a borrower’s monthly payment by incrementally applying the steps below to achieve a 20% Principal and Interest (P&I) payment reduction:

  • Reducing the borrower’s interest rate (if eligible);
  • Extending the mortgage term; and
  • Forbearing principal for borrowers with mark-to-market loan-to-value ratios greater than 50%.

Since 2011, under the Servicing Alignment Initiative, FHFA and the GSEs have developed policies to allow servicers to better resolve mortgage payment delinquencies. These policies have helped to keep struggling borrowers in their homes whenever possible, while minimizing losses to the GSEs and taxpayers.

Click here to read ​Fannie Mae’s Flex Mod Announcement, and click here to read Freddie Mac​’s Flex Mod Announcement.

The state of delinquencies

According to the Mortgage Bankers Association (MBA) latest forbearance data, the total number of loans in forbearance stands at 0.22% as of April 30, 2024. MBA estimates that 110,000 homeowners are in forbearance plans, while the nation’s mortgage servicers have provided forbearance options to approximately 8.1 million borrowers since March 2020.

In April 2024, the share of GSE loans in forbearance declined one basis point from 0.12% to 0.11%. Ginnie Mae loans in forbearance dropped one basis point from 0.40% to 0.39%, and the forbearance share for portfolio loans and private-label securities (PLS) remained the same at 0.31%.

By reason, 71.1% of borrowers are in forbearance for reasons such as a temporary hardship caused by job loss, death, divorce, or disability, while 11.5% of borrowers were still in forbearance due to COVID-19-related instances.

By stage, 57.3% of total loans in forbearance in the initial forbearance plan stage, while 22.7% are in a forbearance extension. The remaining 20.0% are forbearance re-entries, including re-entries with extensions.

Total loans serviced that were current (not delinquent or in foreclosure) as a percentage of servicing portfolio volume (#) increased to 96.09% (on a non-seasonally adjusted basis) in April 2024, up 17 basis points from 95.92% in March 2024.

Unemployment uptick

Another factor playing into the GSE’s servicing numbers is the state of U.S. employment, and according to new data from the Bureau of Labor Statistics (BLS). Unemployment rates were reported higher in April than a year earlier in 305 of the 389 metropolitan areas, lower in 56 areas, and unchanged in 28 areas. A total of 134 areas had jobless rates of less than 3%, and 10 areas had rates of at least 8%. Nonfarm payroll employment increased over the year in 49 metropolitan areas, decreased in two areas, and was essentially unchanged in 338 areas. The national unemployment rate in April was 3.5%, not seasonally adjusted, up from 3.1% a year earlier.

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Picture of Eric C. Peck

Eric C. Peck

Eric C. Peck has 25-plus years’ experience covering the mortgage industry, most recently serving as Editor-in-Chief for National Mortgage Professional Magazine. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books, and has served as Copy Editor for Entrepreneur.com.
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