Fannie Mae Flex Modification Program: A Lifeline for LA Fire Survivors

Mortgage Flex Program for Fire Survivors

What You Need to Know About Eligibility, Property Valuation, and How to Get Started

In the wake of the devastating fires that have affected so many in the Los Angeles area, rebuilding and recovery are at the forefront of people’s minds. For homeowners struggling to make ends meet after such a disaster, the Fannie Mae Flex Modification program offers a lifeline. This program is specifically designed to help borrowers who are behind on their mortgage payments or facing financial hardship by making monthly payments more affordable.

Whether you’re dealing with the loss of income, unexpected expenses, or damage to your property, understanding how the Flex Modification program works can be the key to maintaining your property ownership while regaining stability. Let’s explore what this program is, how it works, and how it might help you or someone you know recover after a disaster like the recent LA fires.

What is the Fannie Mae Flex Modification Program?

This program is like a “rescue plan” for people who are having a hard time paying their home loan (mortgage). It changes the rules of your loan to make your monthly payments smaller and easier to handle. Keeping your home during recovery not only provides a sense of stability and security but also allows you to focus on rebuilding your life without the added stress of relocating.

Common Types of Fannie Mae Loans

The most commonly held loans backed by Fannie Mae are conforming conventional loans, which adhere to Fannie Mae’s guidelines and loan limits. Here’s a breakdown of the most popular types:

  1. Fixed-Rate Mortgages (FRMs)
    • Description: These are the most widely held loans. Borrowers pay the same fixed interest rate and monthly payment for the life of the loan.
    • Loan Terms:
      • 30-year fixed-rate: Provides lower monthly payments due to the longer term, making it the most popular loan type.
      • 15-year fixed-rate: Offers faster payoff with higher monthly payments but lower interest costs over the life of the loan.
  2. Adjustable-Rate Mortgages (ARMs)
    • Description: These loans start with a lower fixed rate for an initial period (e.g., 5, 7, or 10 years), then adjust annually based on market rates.
    • Loan Terms:
      • 5/1 ARM: Fixed for the first 5 years, adjusts yearly afterward.
      • 7/1 and 10/1 ARMs: Fixed for 7 or 10 years before adjustments.
    • While less common than fixed-rate loans, ARMs are attractive to borrowers who plan to move or refinance before the adjustment period.
  3. HomeReady® Loans
    • Description: A Fannie Mae program designed for low- to moderate-income borrowers.
    • Key Features:
      • Down payments as low as 3%.
      • Flexible income eligibility rules, including income from non-borrower household members (e.g., a renter or relative).
      • Reduced mortgage insurance costs.
  4. HomeStyle® Renovation Loans
    • Description: Loans that allow buyers or homeowners to finance home purchase and renovation costs in one loan.
    • Popularity:
      • Ideal for buyers purchasing older homes needing repairs.
      • Helps homeowners increase their property value with upgrades.
  5. Second Home and Investment Property Loans
    • Description: Loans backed by Fannie Mae for second homes or rental properties.
    • Popularity:
      • Borrowers use these loans to purchase vacation homes or properties for rental income.
      • Stricter requirements apply, such as higher credit scores and down payments.
  6. RefiNow™ and RefiPlus Programs
    • Description: Refinancing programs aimed at making it easier for borrowers to lower their interest rates or monthly payments.
    • Popularity:
      • RefiNow™ targets low- to moderate-income borrowers.
      • Allows for reduced closing costs and streamlined approval.

Who Can Use The Flex Program?

You might be able to use this program if:

  • You have a loan from Fannie Mae (you can ask your loan company if this is true).
  • You are behind on payments or think you’re about to fall behind.
  • Your loan is at least a year old.
  • You haven’t already made three other loan changes with this program before.
  • If you’ve had a disaster happen, like your house being damaged in a fire, you might have special rules to make it easier to qualify.

 

Eligibility Requirements for the Flex Modification Program

Before applying for the Flex Modification program, it’s important to understand the basic requirements and criteria for eligibility. Here’s a breakdown:

Initial Requirements

  • Loan Type: The mortgage must be a Fannie Mae-backed loan. You can confirm this by contacting your loan servicer (the company you send your payments to).
  • Delinquency Status:
    • If you are 60 or more days behind on payments, your loan will automatically be reviewed for the program.
    • If you are less than 60 days behind but at risk of missing future payments (known as imminent default), you may still qualify.
  • Loan Age: The loan must be at least 12 months old.
  • Modification History:
    • Your loan must not have been modified more than three times before.
    • You cannot have failed a previous Trial Period Plan for the Flex Modification program within the past year.
  • Disaster Relief: Borrowers impacted by disasters, such as the recent LA fires, may qualify under reduced eligibility criteria.

Credit Requirements

  • No Minimum Credit Score: This program does not require a specific credit score, making it accessible to borrowers with varying credit histories.
  • Payment History: Although there is no minimum credit score, your loan servicer will evaluate your payment history to assess eligibility.
  • Trial Plan Performance: To finalize the modification, you must successfully complete a Trial Period Plan by making smaller, modified payments for a few months.

Property Valuation and BPOs for Flex Modification

An essential part of the Flex Modification program is determining the value of your property. This is done to ensure that the loan terms remain fair and align with your home’s current market value. Here’s how property valuation works:

  1. Automated Valuation Model (AVM):
    • In most cases, Fannie Mae uses an Automated Valuation Model (AVM), which relies on data from recent sales of similar properties to estimate your home’s value. This is quick and often does not require a physical visit to your property.
  2. Broker Price Opinion (BPO):
    • If the AVM doesn’t provide enough information, a Broker Price Opinion (BPO) may be required. A BPO involves a licensed real estate professional evaluating the property and submitting a detailed report. This report includes photos, market comparisons, and other key details about your home’s value.
  3. Full Appraisal (if needed):
    • In rare cases, your servicer might request a full property appraisal to gather more comprehensive details. This involves a licensed appraiser visiting the property and preparing a formal report.
  4. How to Know if You Need a BPO:
    • Your loan servicer will notify you if a BPO or appraisal is necessary. The decision depends on how much data is available in your area and the condition of your property.

If your home has been completely destroyed, completing an Automated Valuation Model (AVM) or Broker Price Opinion (BPO) for the Flex Modification program requires a different approach. Here’s how it works:

How to Handle Valuation for a Total-Loss Burned Property

  1. Use Comparable Properties:
    • When your home no longer exists, the AVM or BPO will rely on data from similar properties in your area. These are called “comparables” or “comps.” The evaluator looks at recently sold homes with similar sizes, features, and locations to estimate the value of your property before it was destroyed.
  2. Documentation of Damage:
    • It’s crucial to provide your servicer with any documentation of the damage. Insurance reports, photographs, or official declarations of the disaster can help establish the condition of the property before the fire.
  3. Vacant Land Value:
    • If no comparables are available or your property was significantly unique, the valuation may consider the value of the land itself. This ensures the loan is tied to something of value.
  4. Who Completes the Valuation?
    • The AVM is automated, but if a BPO is required, a real estate professional, like the Klapper Group, can complete it. For properties destroyed by fire, we tailor the report to reflect the pre-disaster value using available data and property characteristics.
  5. Communicate with Your Servicer:
    • Your loan servicer will guide you on what type of valuation is needed and how to proceed if your home is no longer standing.

How Klapper Group Can Help

The Klapper Group is experienced in providing Broker Price Opinions (BPOs) when required for the Flex Modification program. Our team works efficiently to deliver accurate, timely valuations that meet Fannie Mae’s standards. If a BPO is requested for your application, we’re here to assist FREE OF CHARGE and/or obligation to fire survivors with the following:

  • Evaluating your property fairly and comprehensively.
  • Providing a detailed report to help you move forward with the modification process.
  • Offering guidance on understanding the valuation process and its importance.

How Does the Process for A Flex Modification Work?

  1. The Loan Company Looks at Your Case:
    • They check if you qualify for the program and how bad your financial troubles are.
  2. They Offer a Test Plan:
    • If you qualify, you try out new, smaller payments for a few months. This is called a Trial Period Plan.
  3. You Get a New Loan Setup:
    • If you stick to the test plan, your loan will officially change. This can mean:
      • Adding missed payments to the total loan balance.
      • Giving you a lower interest rate (this is like getting a cheaper “price” for borrowing money).
      • Stretching out the time you have to pay back the loan (up to 40 years!).
      • Reducing the part of the loan you have to pay back right away.

What Should You Do?

It’s helpful to know that Fannie Mae follows a structured process, called the workout hierarchy, to evaluate the best solution for borrowers. This means they’ll assess your situation and determine whether the Flex Modification program or another option is the best fit. You can learn more about their process here.

  • Call the company that you send your loan payments to (your loan servicer).
  • Tell them about your situation and ask if you can get help with a Flex Modification.
  • They’ll explain what paperwork they need from you, like proof of how much money you make or proof of the disaster.

Do You Have a Fannie Mae Backed Loan?

As of September 30, 2023, Fannie Mae owned or guaranteed approximately 25% of single-family mortgage loans in the United States. Given that California represents a significant portion of the U.S. housing market, due to its large population, high demand for housing, and relatively higher home prices, it’s reasonable to infer that a substantial number of these loans are in California.

Most major banks and lenders offer Fannie Mae-backed products. Examples include:

  • Wells Fargo
  • Chase
  • Bank of America
  • Quicken Loans/Rocket Mortgage
  • U.S. Bank
  • Local credit unions and smaller regional banks also often originate Fannie Mae-backed loans.

Fannie Mae Online Lookup

  • Visit https://www.knowyouroptions.com/loanlookup
  • Fill out the simple form with all required and requested information. The form will ask for your First and Last Name, Address, and Last 4 Digits of your Social Security Number.
  • If Fannie Mae DOES own your loan: the resulting page will show a match.
  • If Fannie Mae DOES NOT own your loan: no match will be returned. Check to see if Freddie Mac owns your loan.

Understand Your Options

Recovering from a disaster can feel like an uphill battle, but the right support can make all the difference. The Fannie Mae Flex Modification program is here to help borrowers impacted by events like the recent LA fires regain control of their finances and stay in their homes. If you or someone you know is struggling, don’t hesitate to reach out to your loan servicer and explore this program. Here is a comprehensive training video on the nuances of the Flex Modification Program for more in-depth information.

Remember, the first step to recovery is understanding your options and taking action. With the Flex Modification program, relief could be just a phone call away. Additionally, if you’re navigating financial challenges or need expert advice, consider connecting with a HUD-approved housing counselor. Housing counselors across the county provide free or low-cost assistance on buying a home, renting, defaults, forbearances, foreclosures, and credit issues. You can find a list of HUD-approved agencies in the affected Los Angeles areas by visiting the HUD Housing Counselor Website. These professionals offer independent advice and can guide you through tough decisions to ensure you understand your options and feel empowered.