How the Flex Modification Program Works - SmartAsset

A mortgage modification can help you get better terms on your home loan if you’re struggling to make payments. The Flex Modification program is designed to help homeowners who have mortgages that are owned by Fannie Mae or Freddie Mac. The goal of this program is to make mortgage payments more affordable so borrowers can avoid foreclosure. A financial advisor can help you if you’re considering a Flex Modification.

What Is the Flex Modification Program?

The Flex Modification program allows lenders to help eligible borrowers modify the terms of their mortgage. When a mortgage is modified, it means the terms of the original loan are changed in some way. For example, a loan modification may change the repayment term, reduce the interest rate or lower the monthly payment.

The Flex Modification program was created to replace existing mortgage modification programs, including the Home Affordable Modification Program (HAMP) and the Standard Modification program. The “flex” in the program’s name echoes what the program is intended to do: allow lenders greater flexibility in modifying mortgages for eligible borrowers.

What Does Flex Modification Do for Borrowers?

Generally, mortgage modifications are intended to help homeowners avoid foreclosure and the Flex Modification program is no different. Foreclosure is problematic for borrowers because it means losing the home they’ve invested money and it can damage their credit scores. Lenders prefer to avoid foreclosure because it usually means a financial loss on the loan.

A Flex Modification can help to avoid that scenario by:

Bringing loans current
Potentially reducing the mortgage payment for the loan
Adding past due amounts to the unpaid loan balance
Extending the loan term up to 40 years, beginning from the date the modification is completed
Reducing the interest rate on the loan
Deferring some of the loan balance into a non-interest-bearing balance

The exact terms of a Flex Modification will depend on the borrower’s situation and the original loan terms. But overall, this program can make mortgage debt easier to manage for borrowers who may be experiencing an extended financial hardship.

Who Qualifies for a Flex Modification?

The Flex Modification program is open to borrowers who meet eligibility requirements. In order to get your mortgage modified through the program, you must:

Have a mortgage loan that’s owned by Fannie Mae or Freddie Mac and originated at least 12 months prior to applying for a modification
Live in the home as a primary residence or use it as a second home or investment property
Complete a Borrower Response Package
Be 60 days or more delinquent or on the verge of default if you use the property as a primary residence
Have a stable income to support a monthly mortgage payment
Be experiencing a financial hardship

In terms of what constitutes a financial hardship for a mortgage modification, it can include any of the following scenarios:

Unemployment
Long-term or permanent disability
Extended illness
Divorce or legal separation
Changes to your income or housing costs that are outside your control
Natural disasters
Death of a primary borrower
Job changes that require you to relocate more than 50 miles

You may be able to qualify with other types of hardships if you can provide proof that a true hardship exists.

A Flex Modification must also result in a principal and interest payment that’s less than your current principal and interest payment in order to be approved. If any one of these conditions is not met, then you wouldn’t qualify for help through the Flex Modification program.

Who Should Consider a Flex Modification?

A Flex Modification is meant to help eligible borrowers who have fallen behind or are in danger of falling behind on their mortgage payments because of financial hardship. If you’ve been unable to work because of an extended illness, for example, or you got laid off from work and haven’t been able to find a new job then you might seek help through the program to avoid foreclosure.

Flex Modification may also be suited to borrowers who previously applied for mortgage forbearance. A forbearance period allows you to take a temporary break from making payments. If your forbearance period is drawing to a close and you’re worried about being able to resume your regular payments, a Flex Modification could help to reduce the amount you have to pay.

You do need to have sufficient income to make the payments set by the program if you’re approved. There’s a trial period you have to go through to show that you can make the payments on time. If you’re able to get through that successfully, then you can move ahead with the regular payment period.

How to Apply for the Flex Modification Program

Under the terms of the program, lenders and mortgage servicers are required to reach out to borrowers who are 30 days or more delinquent on their home loans. If you know that you’re behind and haven’t been contacted yet or you think you’re about to fall behind on your mortgage payments, you can reach out to your lender yourself.

Your lender or loan servicer should be able to provide you with the paperwork you need to apply for the Flex Modification program. This is the Borrower Response Package mentioned earlier and it includes the following documentation:

Borrower Assistance Form
Request for Individual Tax Return Transcript
Proof of financial hardship
Proof of income

If you’re technically still current on the mortgage but are at risk of defaulting in the near future, you may also be asked for supporting documentation as proof.

Note that once you’re 90 days or more behind on the mortgage, you don’t have to complete these forms. At this point, you’re eligible for a streamlined Flex Modification, which doesn’t require proof of income. The streamlined version of the Flex Modification is designed to reduce your payment by 20% and keep you out of foreclosure.

Once you’re approved for a modification, you have to make your payments as scheduled to remain eligible. If you default on the terms of the mortgage going forward, that could open the door once again to the lender initiating a foreclosure proceeding against you.

The Bottom Line

The Flex Modification program can provide financial relief to eligible borrowers who are having a hard time making mortgage payments. Whether this program is an option for you can depend on who owns your mortgage and your financial situation. And even if you’re not eligible, you can still reach out to your lender directly to ask what kind of assistance may be available to help you avoid foreclosure.

Mortgage Planning Tips

Consider talking to a financial advisor about whether a Flex Modification might make sense for you and what other options you might have for managing mortgage debt.Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Many mortgage lenders offer in-house modification programs to help eligible borrowers get caught up and stay current on their payments. If Fannie Mae or Freddie Mac does not own your loan, you may still qualify for a modification through your lender. You may need to have a verifiable hardship and meet other requirements but this is an option that’s worth exploring if you want to be able to stay in your home.