What Is The Flex Modification Program (FMP)?

What is the Flex Modification program?

The Flex Modification program (FMP) is a conventional loan modification program designed to aid homeowners who are experiencing long-term or permanent financial hardship. The program, which is offered by Fannie Mae and Freddie Mac, allows you to reduce your monthly payment, get a longer repayment period and possibly even receive a lower interest rate.

Most people who are behind on their mortgage payments can automatically apply for the Flex Modification program through their lender.

How does the Flex Modification program work?

The Flex Modification program is meant to help homeowners avoid foreclosure by making their mortgage payments more affordable. It works by adjusting the terms of an existing loan by lowering the interest rate, extending the repayment term up to 40 years, and moving any past-due payments into the loan balance. It can also reduce your principal and interest payments by up to 20 percent.

Borrowers are typically required to complete a trial period (usually three to four months) in which they must make on-time modified payments before the changes become permanent.

In May 2024, the Federal Housing Finance Agency (FHFA) announced enhancements to the Flex Modification Program. These enhancements enable more people experiencing financial hardship to qualify for loan modification and reduce principal and interest payments. The modifications must lower a borrower’s principal and interest payments incrementally by following three steps:

1. Reducing the borrower’s interest rate (if eligible, to as low as the Flex Modification interest rate)
2. Extending the mortgage term (up to 480 months)
3. Forbearing principal for borrowers whose mark-to-market loan-to-value ratios exceed 50 percent

The enhanced Flex Modification policies took effect on December 1, 2024.

Who qualifies for the Flex Modification program?

Ultimately, your lender determines whether you’re eligible for Flex Modification. For starters, Fannie Mae and Freddie Mac must own your loan, which means it must be a conventional mortgage. If you have a government-backed loan like an FHA, VA or USDA mortgage, those programs have separate loan modification options you can pursue.

Some of the eligibility requirements for the program include:

• Your mortgage is at least one year old.
• Your loan is a first-lien or primary mortgage, which means that your lender will be the first to be repaid if you default and the foreclosed home is sold.
• If the loan is current or past due by fewer than 60 days, it must be for your primary residence. If it’s a second home or investment property, you must be delinquent by 60 days or more.
• Your lender has determined your loan is in imminent default, which means that the lender believes you’re no longer able to afford your payment, even if the loan is current or fewer than 60 days past due.

What is considered a hardship for a loan modification?

Under normal circumstances, lenders can accept any of the following forms of financial hardship:

• Unemployment
• Reduction of income due to circumstances outside of your control
• Increase in housing expenses due to circumstances outside of your control
• Natural or man-made disasters that impacted your property or place of employment
• Long-term or permanent disability
• Serious illness of the borrower, co-borrower or a dependent family member
• Divorce or legal separation
• Separation of borrowers unrelated to marriage, civil union or similar domestic partnership
• Death of a borrower or the primary or secondary wage earner
• Employment relocation of more than 50 miles
• Other hardships as described by the borrower

Regardless of the type of financial hardship you’re dealing with, you’ll need to provide documentation when you apply to prove eligibility.

How to apply for a Flex Modification

Here are the key steps you’ll need to take to get a Flex Modification loan:

• Start the application: If your lender hasn’t already contacted you about Flex Modification, reach out and ask for a borrower response package.
• Fill out the paperwork: Complete and sign the borrower assistance form and Form 4506 from the IRS, which allows the lender to request a transcript of your tax return.
• Provide documents: You’ll need proof of income and evidence of your financial hardship.

If you are 90 or more days late on your mortgage, your lender will use a Flex Modification streamlined process, which doesn’t require that you complete the package.

Pros and cons of the Flex Modification Program

Consider these pros and cons before applying to the program:

Why should you consider a Flex Modification?

The FMP can be an excellent option for someone who is behind on their mortgage payments due to financial hardship and doesn’t anticipate a change in their situation. This long-term solution can help you avoid foreclosure, which can damage your credit and uproot your life, forcing you to find another place to live.

Once you complete the trial period, a Flex Modification also brings your loan to current status. That won’t negate the fact that you’ve been delinquent, but it can stop further damage to your credit score. If the arrangement works with your budget, you’ll be able to remain in your home with less financial strain.

Other ways to get help with your mortgage payments

If your financial hardship is temporary, the Flex Modification program might not be the right fit for you. Here are some alternatives to consider:

• Forbearance: Your lender might offer forbearance, which pauses your monthly payments for a set time. This doesn’t erase what you owe, though, so you’ll need to catch up on those payments later.
• In-house modification: Many mortgage lenders have created their own in-house modification programs that come with different terms than the FMP. One of these could be a better fit.
• Charitable organizations: Some charities provide housing assistance, though eligibility requirements and the extent of the assistance can vary by organization. Examples include The United Way, The Salvation Army, Catholic Charities USA and St. Vincent de Paul Society of Marin County.
• Friends and family: Depending on your situation, you might be able to ask for help from your friends and relatives. Just be sure to understand the potential impact such a request could have on your relationships, especially if you can’t pay them back.

FAQ about the Flex Modification program

• What if Fannie Mae or Freddie Mac doesn’t own my loan? Can I still apply for the FMP?
  

  No, if Fannie Mae or Freddie Mac does not own your loan, then you do not qualify for the FMP. But don’t worry. There are other options if you’re struggling to make your payments, including forbearance and asking your lender about in-house loan modification programs.

• Does the Flex Modification program affect your credit score?
  

  A Flex Modification brings your loan current. While the modification won’t erase those missed mortgage payments from your credit history, the FMP does prevent additional hits to your credit score.

Additional reporting by Erik Martin