If you’re struggling to make your monthly mortgage payment and you have a conventional loan, you may be eligible for the Flex Modification program.
A loan modification changes the terms of your current home loan to make the monthly mortgage payments more affordable. The Flex Modification program is available to homeowners whose mortgages are owned by Fannie Mae or Freddie Mac.
Here’s a closer look at how Flex Modifications work and who’s eligible for one.
What is the Flex Modification program?
Created under the direction of the Federal Housing Finance Agency (FHFA), Flex Modification is intended as a long-term foreclosure prevention solution. A loan modification reduces your monthly principal and interest payments by extending the loan term or reducing the principal balance or interest rate.
The program is called Flex Modification because it gives lenders greater flexibility when evaluating borrowers compared with previous loan modification programs. Lenders may consider how many days delinquent borrowers are and the value of their home.
For lenders a flex modification is generally less expensive and time-consuming than foreclosure. For borrowers, it provides an opportunity to avoid foreclosure and remain in their homes.
How does Flex Modification work?
The process generally begins with an interest rate reduction, if you qualify, followed by extending the loan term. Principal forbearance may also be applied if you have a mark-to-market loan-to-value ratio greater than 50%, according to the FHFA.
Eligible borrowers may be able to reduce monthly mortgage payments by up to 20% through a Flex Modification. This reduction is accomplished in a variety of ways, depending on your financial circumstances:
Past-due payments: Any missed payments are rolled into the outstanding principal owed.
Principal forbearance: In cases of extreme hardship, part of the principal may be placed in forbearance so that you're paying against a smaller loan amount.
Extended loan term: The mortgage's term may be extended for up to 40 years.
Interest rate adjustment: If eligible, your servicer may lower your interest rate as well. The modified loan will have a fixed interest rate, meaning adjustable-rate mortgages (ARMs) and interest-only loans are converted to fixed-rate loans as part of the modification.
These adjustments can be used in combination to help you achieve a more manageable monthly mortgage payment.
Am I eligible for the Flex Modification program?
In order to get a Flex Modification, your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac, either in part or in whole. If you're not sure who owns your loan, you can use the lookup tools on the Fannie Mae and Freddie Mac websites, or call your servicer directly.
Loans from the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture — known as FHA, VA and USDA loans — do not qualify for the Flex Modification, but loan modification options are available from those government agencies.
Flex Modification guidelines and core requirements
Here are some of the qualifications you'll need to meet for a Flex Modification:
Your mortgage must be at least 1 year old.
You must have a first-lien conventional mortgage, meaning your mortgage company is first in line to be repaid if you default and the home is sold.
Your loan must generally be at least 60 days past due. If your loan is 60 days or more delinquent, you may qualify even if the property is a second home or investment property. The property may also be vacant or condemned.
You may still qualify if your loan is current or less than 60 days past due. In this case, your property must be your primary residence, and your lender has determined the loan is in “imminent default,” meaning they believe you can no longer afford your monthly payments.
If your mortgage has already been modified three or more times, you generally won't qualify for another Flex Modification. Payment deferrals don't count toward this limit. Exceptions may apply for disaster-related hardships.
Flex Modification trial period
Before your Flex Modification becomes permanent, your servicer will offer you a Trial Period Plan with your proposed new monthly payment. The trial period typically lasts three or four months, depending on how far behind you are on your mortgage.
You'll need to make each required payment on time to complete the trial period. Once you've successfully completed it and signed the loan modification agreement, your servicer will finalize the changes to your mortgage, making your Flex Modification permanent.
How do I apply for a Flex Modification?
Your lender or mortgage servicer is supposed to reach out to you if you are more than 36 days delinquent on your home loan, but if you are concerned that you'll soon become delinquent or you are exiting forbearance and know you can't resume payments, reach out to your lender.
Your mortgage servicer will provide the paperwork you need to be evaluated for a Flex Modification. This is called the Borrower Response Package, which includes:
A signed and completed Mortgage Assistance Application (Form 710).
A signed and completed IRS Form 4506-C (if needed). Allows the servicer to verify your tax return information if income documents don't match, that you’re self-employed and have not provided the required income documents, or Fannie Mae requests it.
Proof of a financial hardship, such as a job loss, divorce, death or illness.
Proof of income, which varies depending on your employment status. Note that funds received from unemployment benefits are not counted as income, though other forms of government assistance (like Social Security benefits) are.
If you are not currently behind on your mortgage, you may need to provide documentation that shows that you face imminent default — in other words, that even though you're able to pay the loan now, within the next 60 days you will no longer be able to do so.
Streamlined Flex Modifications
If you’re more than 90 days behind on your mortgage, Fannie Mae and Freddie Mac consider your loan to be at severe risk of foreclosure. That’s the end result Flex Modification aims to avoid.
In those instances, there’s a streamlined version of Flex Modification that doesn't require the Borrower Response Package. The goal of the program is also a 20% payment reduction.
No matter your situation, contacting your mortgage servicer is step one. Once you have explained your circumstances, it can help you understand your options. You can also find more general information on the Consumer Financial Protection Bureau website.
NerdWallet writer Isabella Angelos contributed to this story.
