Foreclosure prevention is critical for families and individuals, the communities they affect, and the overall housing market. There is a continuing effort by both public and private agencies to provide loan modification program(s) designed to reduce foreclosures and get struggling homeowners into mortgages that they can afford.

A loan modification, or loan restructure,  is a change to the original mortgage terms. It may include a change to the actual loan product (from an ARM to a fixed-rate mortgage, for instance), interest rate, amortization term and maturity date, and/or unpaid principal balance. The intent of the change is to create a more affordable payment for the borrower.

One of the most ambitious loan modification programs to date officially began December 15, 2008,  aimed at thousands of subprime and other borrowers who are seriously behind on payments — three months or more — and are moving rapidly toward foreclosure. Called the “Streamlined Modification Program”, or SMP, this program resulted from a unified effort among the Enterprises, the Hope Now Alliance and its twenty-seven servicer partners, Treasury, the Federal Housing Administration (FHA) and the Federal Housing Finance Agency (FHFA). The FHFA is the overseer of Fannie Mae and Freddie Mac,  mortgage giants which own/guarantee approximately half of all U.S. mortgages.

So who is eligible for loan modification through the streamlined program? It is targeted toward the highest risk borrowers, those who have missed three payments or more, own and occupy the property as a primary residence, with no past bankruptcy filings. The loan is a Freddie Mac, Fannie Mae or portfolio loan with participating investors. To qualify for the streamlined modification, the borrower must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification. Acceptable situations include circumstances such as divorce/separation, military service, death in the family, job loss, reduction in income, medical expenses, illness, incarceration and job transfer are all likely to be considered valid reasons.

The SMP program allows mortgage and escrow payments to be cut to 38 percent or less of an eligible borrower’s gross monthly income by either reducing mortgage rates, extending the mortgage term up to 40 years, or forbearing on a part of the principal amount until the loan matures or is paid off, at which time the borrower will be required to make a balloon payment.

If you are a borrower in need of assistance, don’t wait until it is too late. Significant amounts of your tax dollars have been allocated for loan modification programs to help stop foreclosures. Contact your lender, or visit www.freddiemac.com, www.fanniemae.com and www.fhfa.gov to get the help you need and deserve.

March 5, 2009 Update: – The details of the loan modification program have been released. See them here:

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